A Former CRE Investment Darling, Industrial Properties Are Coming Back To Earth But Could Stabilize With Just-In-Case Thinking

One of the more downturn-resistant sectors of the commercial real estate (CRE) market may be finally simmering. But one long-time veteran of industrial investment says there are still some opportunities out there as consumers are driving companies to find more space to store their stuff. 

Cliff Booth, the founder and chairman of Dallas-based Westmount Realty Capital, told Benzinga that the move from “just-in-time” supply chains to “just-in-case” has helped maintain industrial spaces as a consistent investment opportunity. 

“What just-in-case means is that you’d better have some extra inventory around. Companies have been caught flat-footed without enough inventory in the past few years and saw their customers go to other suppliers,” he said. “They’ve got extra inventory now and need a place to store it. They’ve gotten a lot more scientific about planning for what products they need on hand, and that affects industrial real estate.”

J.P. Morgan’s mid-year report said the industrial sector is softening, with vacancies declining every quarter since the end of 2020. The vacancy rate for distribution and warehouse space of 4.1% throughout the second half of 2022 was a record low, but that rate rose 10 basis points to 4.2% in the first quarter of 2023. 

Booth has invested heavily in industrial real estate since 1980. His Westmount Realty has built a portfolio of over 15 million square feet of primarily industrial properties. Although he experienced four decades of ups and downs in the industrial sector, Booth sees the current investment environment as unique, with some oblivious to financial constraints.

“It’s different than most of the other downturns I’ve been involved with. The buying atmosphere is more competitive than I’ve seen in a long time. We’re bidding every day,” he said. “People are assuming that interest rates will peak soon, level off and go down. So paying a lot more for debt right now is not impacting their buying calculus as much as you would think.”

Because of a lack of funding opportunities, industrial investment overall has significantly decreased from its highs in 2022. The Green Street Commercial Property Price Index, which tracks the pricing of institutional-quality commercial real estate, is down 15% overall from its March 2022 peak. The report noted that industrial real estate, specifically, dropped almost 70%. 

Booth says those numbers don’t align with what he’s seeing in the market. “Those numbers surprise me. I’m just not seeing that. And no, we’re not seeing great buys out there right now and wish we were. There’s been some slowdown of the big box investment, with Amazon specifically,” he said. “But there are some good deals here and there. We are seeing more opportunities in multitenant light industrials, which are less affected by downturns than new development.”

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