Real Estate Firms Focus on Trucking
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The commercial real estate sector has sharpened its focus on trucking-related properties as demand for facilities and space has increased.
“There’s been very strong demand for industrial real estate,” said James Breeze, global head of industrial and logistics research at CBRE. “What we’re seeing is that a lot of what we call occupiers, the people who actually occupy the buildings, are looking for more space to control inventories.”
Breeze noted that the industrial sector mostly includes the warehouse and distribution category at about 80%. The other 20% consists of manufacturing and some specialized facilities. CBRE as a brokerage firm represents companies that invest in these properties to lease or resell.
“There’s been a major shift in the thinking of occupiers to hold more inventory,” Breeze said. “Prior to COVID, it was called just-in-time inventory strategy. They were essentially projecting how much inventory they would need. They were trying to keep inventory levels low as a cost-saving method. That essentially failed as COVID hit.”
Breeze
Breeze added the shift in strategy has been a major demand driver for industrial real estate. CBRE research shows the overall industrial vacancy rate fell 70 basis points year-over-year to a record-low 2.9% for the second quarter of 2022. The average net asking rent increased by 14.9% to a record $9.40 per square foot.
“When you have a very low vacancy rate, you can charge higher rents,” Breeze said. “Also, when you have a record-low vacancy, you need more space. So, we are also seeing a record amount of development.”
Breeze noted 2021 was a record year for industrial real estate leasing. This was particularly true for warehouses, with the biggest demand driver being leasing more space for inventory control. This year is on course to be the second strongest.
“The market continues its pretty torrid pace of investment activity that has been going on for the past 24 to 18 months,” Erik Foster, said head of industrial capital markets at commercial real estate firm Avison Young. “It was toward the end of the summer of 2020 when people started to realize that the industrial asset class did not get affected by the pandemic.”
Foster noted trucking transportation followed the same overall trend. That includes increased interest in purchasing trailer storage, low-coverage transportation nodes, transload facilities and truck terminals. There also has been interest in cold chain assets.
Foster
“That means continued aggressive high pricing,” Foster said. “Because of the fundamentals of the industrial real estate sector, demand by tenants continues to be strong. So, rental rates continue to be high, which is beneficial to owners and landlords. Additionally, because of supply chain problems and raw material problems, developers are constrained a bit.”
DryPort Capital is a real estate logistics investment firm that has focused on acquiring properties in key transportation markets to provide truck parking. Its multitenant parking model allows for large carriers and owner-operators to lease space on the same property.
“Truck parking has been an issue for years, decades,” said Mike Burney, real estate director at DryPort. “It’s been a fragmented part of the logistics market for lack of a better word. It’s just not been institutionalized.”
DryPort most recently acquired an almost 20-acre truck parking and industrial outside storage development site Aug. 19. The property is located on Highway 90 in Katy, Texas. DryPort plans to construct a 325-spot truck and trailer parking facility. The site will be managed by its operating company, Riggy’s.
“We’ll buy existing lots that are already stabilized, have been operated,” Burney said. “We’ll go buy those, spend a lot of capital dollars to improve the security. A lot of these aren’t even fenced. We’ll put in lighting, clean up, fix the stabilization and then we operate and lease those properties to owner-operators on a monthly basis.”
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TCN Worldwide is a consortium of independent commercial real estate firms. That includes companies that deal with industrial commercial real estate transactions such as developing land for the trucking industry.
“On an overall national basis, the industrial market, as it relates to facilities that are closely tied to the interstate highway system, are incredibly tight,” TCN Worldwide CEO Ross Ford said. “That marketplace has been very strong. There’s been an awful lot of development in that field. So, what we’ve seen is both rental rates as well as lack of availability in quite a lot of areas.”
Ford noted that this activity goes back several years. It did take a hit at the beginning of the coronavirus pandemic but quickly recovered. He noted that over the past quarter there has been a sense that a peak has been reached and that activity is starting to slow down. He has also seen a dramatic increase in smaller distribution facilities on the local level for last-mile delivery.
