Page 22 - RE-NJ

20 MAY 2022
The market for warehouse
and logistics space, with its unprecedented success in recent years, faces new pressure from
rising interest rates, inflation and a changing scope of demand from the e-commerce sector. Yet developers and investors remain bullish on the sector’s fundamentals and a tenant pool that has grown more diverse.
It was a key message in late
April from five industry leaders, including executives from four of the country’s most prolific builders and buyers of distribution space, who spoke during a program hosted by Real Estate NJ. Demand is still well ahead of supply in New Jersey and other top-tier markets, they said, even with signs of economic
uncertainty at home and abroad.
“You’ve got all kinds of new demand, and that diversity of demand is what’s driving the market,” said
Rob Kossar, a vice chairman with JLL and its Northeast industrial market director. “So it’s not all about e-commerce anymore.
“On the flip side ... the capital markets are a little choppy right now,” he said, pointing to rising interest rates, inflation, the war in Ukraine and lenders “that have gotten a little skittish and rates that have moved.” He continued: “(That) has affected the underwriting on deals, particularly stabilized long-term deals, but also potentially in value- added development.”
The panelists — which included Bridge Industrial’s Jeff Milanaik, Prologis’ Fritz Wyler, CenterPoint Properties’ PJ Charlton and Link Logistics’ Britt Winterer — said the economic unease has cast a cloud over the industrial market that
they haven’t seen in several years. Developers are not only grappling with supply chain issues and rising constructions costs, as they have through most of the pandemic, but a tighter lending environment.
That has raised at least some questions about the buyer pool for industrial — now the most coveted asset class by investors — and the returns that sellers can achieve.
“It makes it a much more difficult investment environment today, with
that uncertainty,” said Winterer, an executive vice president and head of development for Link Logistics, Blackstone’s industrial real estate arm, speaking during the April 26 program at The Highlawn in West Orange.
Even so, owners are likely to withstand the headwinds thanks to the market’s ongoing lack of supply, which has fueled record rent growth in recent years. Those fundamentals have allowed developers to command annual increases in their leases, the panelists said, helping to offset cost increases and the surging price of development sites.
“There’s been such great capital demand in those markets that it’s driven the pricing up significantly,”
BUILT TO ENDURE
Leading developers, owners see continued growth for industrial market, despite new headwinds
By Joshua Burd
More than 200 attendees turned out April 26 for “The View from the Top: A Conversation with Leaders in Logistics Real Estate,” a conference hosted by Real Estate NJ at The Highlawn in West Orange. Speakers included (clockwise from top left): Prologis’ Fritz Wyler, Bridge Industrial’s Jeff Milanaik, Link Logistics’ Britt Winterer, JLL’s Rob Kossar and CenterPoint Properties’ PJ Charlton.
said Winterer, whose team focuses largely on coastal, supply- constrained regions. He later added: “In order to pay the high prices for this infill, gateway market real estate, you’ve got to be able to push rents and you’ve got to be able to push bumps, especially now in an inflationary environment.”
The pace of rent growth has also allowed landlords to rethink their approach to longer- term leases.
“We’re not shying
away from 10-year leases,” said Charlton, a senior vice president for investments with CenterPoint, “but it is a strategy of ours to do a five-year lease instead of a 10-year lease or look for investment opportunities that have two or three years of term.”
Photos by Aaron Houston for Real Estate NJ