In late 2014 I wrote a blog article suggesting that industrial real estate was heating up, and I gave my reasons. Apartments have enjoyed sensational appreciation for the past several years, but an investor looking to invest in commercial real estate in 2015 doesn't want last year's winner. He wants to invest in that type of commercial real estate which is going to perform the best in the next 12 months.
This week I flew to Las Vegas for the California Mortgage Association's semi-annual training session for hard money mortgage companies. The conference had a number of speakers, but by far the most entertaining and informative speaker was Luis A. Belmonte, the gentleman who gave the economic outlook for the upcoming year. Mr. Belmonte is a former partner in Lincoln Properties and formerly the Executive Vice President of AMB Institutional Realty Advisors, the asset manager for 15,000,000 square feet of industrial property throughout the United States.
Mr. Belmonte made some very interesting points. First of all, he remains bullish on multifamily due to the fact that leading edge of the children of the Echo Boom generation - the grandsons and granddaughters of the Baby Boomers - have reached the age of sixteen. Soon these 80 million Americans will be forming new households, and they will need apartments.
Office space, in his opinion, is still greatly overbuilt. The office space vacancy rate in most cities remains in the mid-teens. Rents are going nowhere. Retail space - he wouldn't touch it with a ten foot pole. Amazon.com is eating retail's lunch.
But then he got to industrial space. "Industrial space is the best type of commercial real estate in which to be invested today." He gave a number of reasons:
- There has been almost no new construction of industrial space for eight years.
- Absorption of industrial space is outpacing new construction in almost every major city.
- Wages in China have increased dramatically in recent years. It's not that much cheaper to manufacture goods in China anymore. [George's note: The Boston Consulting Group maintains a cost index for the various counties, and China is only 4.5% cheaper than the U.S. right now, mainly because our natural gas / energy costs are tiny compared to the rest of the world.]
- But then he gave a reason that rocked my world. "For every two square feet of retail space that the internet makes unnecessary, the U.S. needs one square foot of warehouse space" (for internet retailers to store their products).
End of article.
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