Cawley Insights

Why Rising Interest Rates Won’t Dampen Industrial Sales

Posted by Dan Cawley on Feb 15, 2018 2:47:32 PM

Original Post:


NEWPORT BEACH, CA—Even with rising interes

t rates, there is still room for cap-rate compression driven by projected NOI growth at the property level and the appetite for institutional investors to increase their allocation to industrial, Bixby Land Co.’s Aaron Hilltells The firm, a commercial real estate operator and investment manager in the western US, recently named Hill as president, extending an 11-year tenure at Bixby, where he most recently served as EVP and COO.

The move is a natural progression for Hill, who as COO has overseen day-to-day operations with a focus on portfolio management for the firm. Bill Halford, who has served as Bixby’s president and CEO since 2006, retains his CEO position and continues to lead the strategic vision and growth of the company.

We sat down with Hill for a chat about the move, the company’s goals and how he views the industrial sector. Describe for us your company’s investment goals as you move into this new role.

Hill: Bixby Land Co. is targeting between $350 million and $400 million of industrial acquisitions, in both primary and secondary markets in the western US, over the next 24 months. Investments will consist of selective core-plus and value-add acquisitions of office and R&D. What makes industrial such a smart move for your firm?

Hill: We have a fully integrated operating platform with a proven history of acquisition, operation and disposition of industrial properties on which we capitalize. We currently oversee approximately 5 million square feet of industrial real estate under management.

Industrial demand drivers remain strong and are projected to outperform other asset classes. These demand drivers include increased industrial production, increased trade, growing US GDP, increased retail sales, increased new-home sales, increase in inventories, improving consumer confidence and the growth of c-commerce. We anticipate that these demand drivers, combined with rising construction costs for new product and limited available land in primary markets, will lead to positive rent growth over the next few years. Additionally, even with rising interest rates there still is room for cap rate compression driven by projected NOI growth at the property level and the appetite for institutional investors to increase their allocation to industrial. How do you see this sector changing over the next five to 10 years?

Hill: E-commerce has been, and will continue to be, a driving force of change in the sector. Based on the continued move towards urbanization and the demand for next-day product delivery, or even same-day delivery, the fulfillment chain will continue to evolve over the next five to 10 years. This will likely lead to an increase in demand for smaller regional distribution centers, cross-doc and service/sorting depots in and around population centers. This demand, combined with limited existing supply and new developmentopportunities in these locations, could lead to evolving building construction (e.g., multi-story industrial buildings) and the repositioning of other product types (e.g., stand-alone big-box retailers). What else should our readers know about the industrial sector?

Hill: Although we are bullish on the industrial sector, there are still a few potential risks we are watching. These include the normal threats like overbuilding and building obsolescence, but they also include the fulfillment-chain evolution, technology and automation disruption, the price of oil, Panama Canal expansion (for the West Coast markets) and geopolitical uncertainty/trade.

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Written by Dan Cawley

A Blog by Cawley Chicago
Understanding & Creating Value as Chicago's Dominant Submarket Specialist.


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