Logistics And EV Plants Continue To Drive Success Of Industrial Real Estate

With the commercial real estate sector suffering from continually rising interest rates, insurance and taxes, industrial land and properties continue to be a growing and popular investment target in 2023. And while some expect a slowdown later this year, the mood is bullish for the sector in 2024 and 2025. 

San Francisco-based investment management platform Juniper Square recently released a report tracking the shifts in the commercial real estate (CRE) space by property type over the past 10 years. Among its findings are that the share of industrial land and properties is being driven by the rise of e-commerce, and the percentage of industrial land and properties in general partner (GP) portfolios, has grown from less than 4% to nearly 18% since 2013. The study credits the increasing need of facilities for e-commerce. On the downside, the analysis continues to show a slide for office space and hotel demand. 

MaCauley Studdard, managing director of St. Louis-based ElmTree Funds, said he agrees with the study’s results but also credits the automotive industry for the success of industrial property investment. 

“We’ve been active in the space and focused on build-to-suit properties. A lot of the demand for new distribution space is because of the growth of e-commerce and new electric vehicle (EV) plants,” he told Benzinga. ElmTree Funds is a private equity real estate firm that works with the CRE net-lease sector. 

Studdard’s enthusiasm for EV and distribution in the industrial space is bolstered by recent activity across the country, especially from Amazon.com Inc. and large automotive original equipment manufacturers.

Since 2020, Amazon has spent at least $2.2 billion on land and property it’s used for redevelopment, according to analytics and information services firm CoStar Group. While the number appears to be large, CoStar says the estimate is actually conservative because some states, including Texas, aren’t required to share purchase prices. 

Two German automotive manufacturers have also made significant electric vehicle production investments in South Carolina. Volkswagen has launched a five-year plan for its EV program, including a $2 billion factory producing cars, SUVs and all-electric trucks. BMW announced a $1.7 billion expansion to its already existing Spartanburg plant, including $700 million to develop a new high-voltage battery assembly facility.

Ford Motor Co. announced this year that it is building a new $3.5 billion electric vehicle battery plant — the BlueOval Battery Park — on 1,900 acres in Marshall, Michigan. 

“We are seeing a lot of demand in the automotive space with a lot of trickle-down interest from suppliers looking to build near the plants,” Studdard said. 

But the CRE interest in industrial properties is strictly in build-to-suit investment and not related to existing manufacturing and industrial properties, he said. 

“I think it makes more sense to build new, especially with the 10- to 15-year leases we’re seeing and some up to 30 years.”

While Studdard sees continued growth in the industrial space, he also predicts interest rate hikes are finally catching up to the speed of new construction and expects a slowdown of up to 50% in the next three quarters, with a rebound again in 2024 and 2025.

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