Friday, June 24, 2011

Investors are taking a renewed interest in industrial sites

by Natalie Kostelni

"Industrial properties have increasingly become a top choice for investors who view them as stable, attractive commercial real estate that can provide steady long-term returns.

The focus on the industrial sector shows how investors are being picky about which commercial properties in which they want to invest. During the recession, multifamily properties became a popular choice and continue to derive interest from those seeking to plunk money into commercial real estate. Industrial is now getting some attention at the expense of office buildings, which, unless top-tier and well-leased, are still considered too risky.

One way to measure interest is noting how many investors take tours of properties that have hit the market. For example, more than 20 different groups took a peek at Drew Court, a 146,906-square-foot industrial complex in King of Prussia that is fully occupied and up for sale. The property could trade for as much as $10 million.

“There’s a tremendous amount of money chasing industrial rather than office today and a tremendous amount of industrial product on the market,” said the broker who is helping to sell Drew Court. “Industrial hit bottom and is starting to come back up.”

He is also overseeing the marketing of nine industrial portfolios totaling 6.6 million square feet in the mid-Atlantic states that got 26 offers made on them.

There aretwo large properties in Philadelphia that recently came up for sale.

One is the former Penn Jersey Paper building, which totals 180,000 square feet on nearly 11 acres at 2801 Red Lion Road. Asking price is $8.8 million. The other property is the former Homeline Furniture warehouse at 2121 Wheatsheaf Lane. The building totals 300,000 square feet on 21 acres and could go for as much as $12.2 million.

“We’ve had good activity on both buildings,” noting that investors along with prospective tenants have taken a look at them.

Even Liberty Property Trust of Malvern made a strategic decision to sell off some of its office and flex properties and shift more resources in buying big-box industrial real estate, where it sees future growth opportunities. Last month the real estate investment trust sold 32 of its older office and flex properties in the Lehigh Valley for $124 million and 14 similar properties in Richmond for $97 million and plans to deploy funds to increase its industrial presence in both areas.

Industrial leasing activity has also picked up compared with last year and that has started to make properties more valuable.

“You’ll eventually see an end to a tenants’ market because a lot of space is being absorbed and rents will go up,” he said.

Even the Barrington Business Center, a sprawling 931,525-square-foot expanse of warehouse and manufacturing space that has wallowed for over a year with a 710,000-square-foot vacancy in Camden County, is seeing some serious activity. About 250,000 square feet could soon be occupied.

The industrial vacancy rate fell to 8.1 percent in the first quarter of this year compared with 10.2 percent at the end of last year. Southeastern Pennsylvania experienced its seventh consecutive quarter of positive net absorption with 1.8 million square feet taken off the market and occupied by companies. South Jersey hasn’t been as strong and its vacancy rate rose to 10.1 percent from the previous quarter.

The boost in leasing activity can be attributed to gains made in the manufacturing sector as well as retailers, including grocery chains and others, occupying more space. As leasing continues to pick up, rents are expected to tick upward.

“There seems to be money chasing returns. The bond market is providing anemic returns and stock market is down. Investors are looking for alternatives and real estate is coming back in vogue. People are scared to death of office unless it’s trophy office.”

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