sales are still solid
Changing consumer behavior due to the coronavirus has caused a significant impact on industrial property sales
During the last cycle, industrial property has been one of the high-performing sectors and even during the pandemic, certain segments remain in high demand.
James Cook talks to John Huguenard, JLL’s head of industrial investment sales to find out which ones are outperforming, just who is buying and what he expects for the future.
James Cook: [00:00:00] Covin 19 is taking its toll on our economy and it's causing a change in consumer shopping habits, and that's a change that's also affecting industrial property investment sales. Today's question, what industrial buildings are investors buying right now? This is building places where we look at the world of commercial real estate through the eyes of the experts that study it every day.
[00:00:25] My name is James Cook. I researched real estate for J L L and today I'm calling up John Hugans ARD to talk industrial investment.
[00:00:34] John Huguenard: [00:00:34] Hi, my name's John co-head, our industrial capital markets platform at JLL.
[00:00:39] James Cook: [00:00:39] You're helping people buy and sell industrial buildings. Is that a generalized way to put it?
[00:00:45] John Huguenard: [00:00:45] Yes.
[00:00:45] Leased industrial buildings.
[00:00:48] James Cook: [00:00:48] What was it like before the coven crisis started?
[00:00:54] John Huguenard: [00:00:54] So first quarter of 2020 we had a very robust volume of just inside $30 billion that traded.
[00:01:01] James Cook: [00:01:01] So how much has the volume changed in, in sales since, since covert hit?
[00:01:07] John Huguenard: [00:01:07] Uh, we're down at least 50% at this point. It could even be down further as the quarter goes on.
[00:01:12] James Cook: [00:01:12] And was that surprising to you? Is that more than you thought it would go down.
[00:01:17] John Huguenard: [00:01:17] Actually just the opposite at the time of the virus and everything game to a screeching halt, we thought that they sales volume would be off tremendous and at this point we are seeing a lot of transactions that we can get closed.
[00:01:30] James Cook: [00:01:30] What kinds of industrial buildings are selling right now?
[00:01:32] John Huguenard: [00:01:32] So are you seeing that as certainly a flight to quality? So it's going to be a new asset that is either recently been leased or a class a building that's got great clear Heights, great functional attributes and single tenant. And a lot of this has to do with our inability to get due diligence done, uh, on multitenant, multi building portfolios.
[00:01:53] James Cook: [00:01:53] Why is due diligence easier to do for a single tenant building as compared with a multitenant building?
[00:02:00] John Huguenard: [00:02:00] I think the biggest thing is we're dealing with one tenant, so provide an access to just one space versus, um, you know, five units of 20,000 square feet. You got five different businesses as you need to make each of the different spaces.
[00:02:15] Then, and the last. 30 days. I think a few of the buyers of that real creative on how to complete their due diligence and have done that where everybody comes in on one day versus trying to do that over the course of a 30 day time period.
[00:02:30] James Cook: [00:02:30] So John, you're actively marketing properties for sale right now.
[00:02:36] How is it different now than it was, you know, just a few months ago?
[00:02:40] John Huguenard: [00:02:40] I think as as the first part of April head, we were much more on a targeted basis and we would go out to those that we thought or felt were active in the in the market. Right now, in the last several weeks, we've gone back to blast our opportunities out to a broader market, and the response that we've gotten over the past two weeks is really much better than we would have anticipated.
[00:03:05] And we're getting just a deeper buyer pool than we would have thought otherwise.
[00:03:10] James Cook: [00:03:10] That's a really good, good story that your, you know, your marketing stuff for sale right now and, and groups seem to be interested in buying it. That's great news. What kinds of companies are the tenants of these properties that are trading right now?
[00:03:25] John Huguenard: [00:03:25] I mean, there's certainly is a flight to quality. So we've seen the largest e-tailers in the world is probably the most sought after other overnight delivery companies that have a real access to the eCommerce space. And then lastly, a three PL providers that have multiple clients in their facilities.
[00:03:47] Those are probably the top three that we're seeing. And from a desirability. A point.
[00:03:53] James Cook: [00:03:53] So it's kind of what is going on right now in the greater economy, is that people are buying things more online. People are getting things shipped to them because they're not going out to stores as much. And so those are the, the kinds of tenants that are really doing well right now, is that correct?
[00:04:09] John Huguenard: [00:04:09] Absolutely. And any of the other things, just simply the financial conditions of those companies, they're only going to keep getting better as a result of people using the e-commerce and home delivery.
[00:04:21] James Cook: [00:04:21] Of the multitenant buildings, multitenant industrial buildings out there. Are they seeing a lot of tenants not paying their rent right now, or has that not been a problem?
[00:04:31] John Huguenard: [00:04:31] think we're very fortunate in the industrial space. That has not been a huge problem thus far, and I think we as a company have seen less requests in the month of may than where you would have seen an April.
[00:04:43] James Cook: [00:04:43] So are you finding any investment groups saying, you know, now's the time to, to jump in and take opportunity in the industrial space,
[00:04:52] John Huguenard: [00:04:52] what we've seen over the past 30 days is that an endless amount of new foreign buyers that have focused on the United States for the industrial space.
[00:05:02] So they may have been from another product dives or they'd been through the virus earlier than what the United States has been in the us. They're willing to look. Do you have a group that we've seen a tremendous amount of activity from as the high net worth buyers, so people that may have had some sort of an issue when it comes to the stock market over the past 30 days too.
[00:05:22] Let's go ahead and go into hard assets. We have some of our, our major traditional customers are the United States, still are on the sidelines waiting. But I think overall our buyer pool is probably from the 1st of April til now at least, you know, four to five times greater than it was that first week of April.
[00:05:40] James Cook: [00:05:40] So John, let's go back in time for a second. I'm going to guess and say you are around for the, for the last recession. What did you learn from that that you can translate to this time?
[00:05:52] John Huguenard: [00:05:52] The overall vacancy rate at the end of the first quarter was right at 5% in the United States. And previously we've had much more of an overhang for available space.
[00:06:03] So closer to double digit vacancy. And I think one of the things that you see from an industrial standpoint today versus then is just a lot more demand for industrial. And that being e-commerce, that's being ATL loans, who are continuing to expand their business. So the biggest thing is just the demand side of it, and hopefully that'll continue.
[00:06:26] James Cook: [00:06:26] If a client asks, what's your prediction for the next 12 months? What can you say with any, can you say anything with any degree of certainty?
[00:06:35] John Huguenard: [00:06:35] I think one more than, of course, the next 12 months we're going to continue to see quite a few single tenant offerings come out, because that is certainly what the buyers are looking for.
[00:06:44] We're hoping that the tail end of the year, we still have to see some more multitenant buildings, portfolio business start to trade, and a lot of the liquidity associated with some of that multitenant space should be available later this year, and thus some additional offerings that may come forward from that.
[00:07:01] James Cook: [00:07:01] Thank you so much for joining me today.
[00:07:03] John Huguenard: [00:07:03] Thanks, James. All right.
[00:07:06] James Cook: [00:07:06] Do you have a comment on today's episode or maybe a question you'd like for us to tackle while you should tell us about it? Leave us a message on the podcast hotline and we might even use your voice on an upcoming episode. Give us a call at (602) 633-4061 and be sure to tell us your name and where you're calling from.
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[00:07:52] If you'd like to learn more about retail real estate, you can listen to our sister show. It's called where we buy. It's a show where we talk with retail experts and we visit the places where we buy.