BREA, CA—The rise in interest rates
could further the strength of the US dollar, which will give US firms more purchasing power on imports, Unire Real Estate Group
’s director of client services Griffin Cogorno
tells GlobeSt.com. Given the Fed’s recent decision about a rate hike, we spoke exclusively with Cogorno about this topic as well as property-, asset- and construction-management
trends to watch for in 2016.
GlobeSt.com: What were the greatest challenges in property, asset and construction management in 2015?
2015 posed some challenges for everyone in the marketplace, which was explosive this year.Developers
were pushing to complete projects, tenants were chasing limited inventory, owners were able to hold the upper hand in lease
negotiations and land remained very scarce. Demand continued to be a major story as tenants and owners chased a lack of inventory, which pushed caps lower and rents higher. Value-add
funds moved to more secondary locations and tertiary locations, chasing yield as vacancy continued to decline to record lows in core and core-minus locations. As 2015 comes to a close, it appears that 2016 will continue with a similar story.
GlobeSt.com: How do you see these challenges shifting in 2016?
In 2016, we are expecting demand to continue to outpace supply. Now that the Fed
has officially raised interest rates for the first time since 2006, cap rates should subsequently rise with interest rates, since the cost of funds will rise and directly affect the ROI
for owners, funds,REITs
players. These players will be paying close attention to their cost of funds with an eye on the Fed’s since they plan to raise rates throughout 2016, with respect to their pro forma models. The rise in interest rates could further the strength of the US dollar, which will give US firms more purchasing power on imports. An increase in imports (containers with goods) directly effects the US industrial
core markets since logistics
and all other companies will require additional square footage to house the increase in imports. More cargo containers coming onto American soil puts pressure on the core markets, which will continue to drive demand in a very competitive market.
GlobeSt.com: Tell us more about how the increased purchasing power for imports could impact the industrial sector.
In addition to the above highlighted notes, it is important to note that the industrial sector relies on the purchasing of goods from the consumer and supplier. Fifty percent of all goods brought into the ports of Los Angeles and Long Beach stay in the Southern California. The other 50% is distributed throughout the US by rail or truck. As the ports continue to unload more TEUs (20-foot equivalent containers), the demand to house and distribute those goods increases. Each TEU is responsible for 15 square feet of industrial space. As consumers and suppliers purchase more due to a strong dollar, the industrial market is directly affected with an increase in demand as well.
As the dollar continues to strengthen against other currencies, US companies can buy more for less than they could a year or two ago. This increase in purchasing power will require additional industrial space to house these goods. There is a reason why large retailers like Home Depot, Lowe’s, Whirlpool, Skechers
, etc., have multi-million-square-foot facilities in SoCal and throughout the US.
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