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Debt Remains Available

Respondents appear more confident on access to debt.

There continues to be good liquidity for industrial assets. Nearly half of investors say that equity is more widely available than it was a year ago, which is a jump from 37 percent who held that view a year ago. One-third say there has been no change, and only 7 percent say it is less available. Respondents also appear more confident on access to debt with 42 percent who say debt is more available compared to 31 percent a year ago. In addition, 34 percent said access to debt is unchanged, while 11 percent say it has been less accessible.

As it applies to specific financing terms, more than half of respondents believe loan-to-value (LTV) ratios (57 percent) and debt service coverage ratios (59 percent) will remain the same. However, there was a slight uptick in expectations that both could increase in the coming year as compared to the 2020 survey. Twenty eight percent now think LTVs could increase compared to 20 percent a year ago, and 34 percent said debt service coverage ratios will increase versus 21 percent a year ago.

Black Creek Group invests on behalf of retail investors and institutional investors. “Across the board, all investors are trying to allocate more of their dollars to industrial and less to other real estate asset classes,” says Fazekas. “The returns, rent collections and tail winds in the industrial space are very different than the other asset classes. So the investor base wants to be in a growing subset of the real estate sector.”

“I think there’s more runway ahead. Some developers are getting nervous that the market is so frothy,” says Mohr. However, it is important to remember that e-commerce is not only driving demand for space, but e-commerce requires about 3x the amount of warehouse space compared to traditional physical retail due to the pick and pack required for order fulfillment, he adds. That being said, industrial demand is very focused on the top 50 metros, and the coastal markets in particular are leading due to population density, he says.

When respondents were asked to rank the relative strength of their regions (on a scale of 1 to 10). The South scored the highest with a mean score of 8.2, followed by the West (7.6), East (7.7) and Midwest (7.3). Although numbers were comparable to last year’s survey, the strength of the West slipped 60 basis points from 8.2 to 7.6.