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Where Have All the Sellers Gone?

January 2, 2013
By: Rene Circ, Director of U.S. Research, Industrial
By the time all the deals are accounted for, total warehouse transaction volume in 2012 will fall about 30% short of the peak level in 2007. Yet apart from sales volume, today’s investment landscape is starting to resemble the peak year in another way-too much money is chasing too few quality properties. We may as well get used to it. Next year will be even worse.

While buyers are actively raising funds, the number of sellers is dwindling. Let’s go down the list. Public REITs have realized that the best way to increase shareholder value is through FFO multiple, and they will try to sell their least desirable properties while holding on to the better ones, which include new construction.

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Non-traded and private REITs continue to see daily capital inflows, so their primary focus will remain acquisitions.

Private local investors know their local markets and will prefer to hold through the next renewal, as recent in-place rents are below their long-term trend, and those who would be sellers are in the market now, trying to book gains before their tax rates go up.

And core institutional investors will have a hard time replacing the same quality income stream without any dilution.

So, core buyers out there, we hope you have come back from the holidays prepared for a year that will be much tougher than the outgoing one. Unless, of course, buying vacancy is to your liking. And if it is not, it should be.

The national market has reabsorbed all the space that went vacant during the recession; the number of vacant blocks is below its prerecession level; rent growth is about to return; and a large wave of speculative new construction is still a year away.

Being the last landlord with a vacant large block of space will sound attractive compared to bidding on a new core acquisition opportunity together with your 20 closest friends.

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