'If you are a landlord right now, it is the best of times,': Savills EVP on the industrial real estate market

Gregg Healy, Savills EVP joined Yahoo Finance Live to break down the industrial real estate market and the hottest spots real estate investors are flocking to.

Video transcript

- Let's stick with real estate and talk about industrial real estate market, and the demand for growth in this sector. We want to talk about that with Greg Healy. He's executive vice president at Savills, and head of the company's industrial services group in North America. Greg, it's great to have you. I guess, just [INAUDIBLE] big picture as the company, the economy rebounds right now. What's your company saying just in terms of demand and where there's opportunity at this point?

GREG HEALY: Absolutely. It's been an incredible run with industrial real estate thanks to e-commerce and COVID-19. We saw the largest amount of industrial absorption last year, 300 million square feet. And it looks like it looks like there's no sign of stopping that going forward. Already this year, we're seeing over 252 million square feet of industrial square footage being placed on the market in different places around the country. And next year, another 342 million square feet. So over $700 million square feet in the next 2 and 1/2 years of industrial square footage adding to our current inventories to help alleviate some of the challenges we've seen in this market.

Absolutely, if you are a landlord right now, it is the best of times because industrial has had no slowing down. You can pretty much ask what you want for rent, and people come knocking on your door trying to lease that space up, particularly in the major industrial markets. If you're a tenant on the other side, big challenges. It's really tough right now. You're seeing rent increases of 10% or more in certain markets. So a lot of

- Hey, Greg?

GREG HEALY: Yes.

- If an investor wanted to get in on this, you actually have pointed out, hey, take a look at what's going on in the mid-Atlantic. But be careful about other parts of the country where some of this warehouse build up because of the Amazon effect may be over-saturated. Can you tell us more about that?

GREG HEALY: Yeah, absolutely. So you want to go where the people are. In supply chain, 50% of your cost or more is really around transportation. So we're seeing the highest growth in population in the southeast markets, and the south in general, the smile states. And so you're seeing this growth of industrial resources being placed on those markets. The northeast has been flat, and some areas declining. Those areas, I think, are a little bit more suspect when it comes to investment for industrial real estate. Unless you're looking at maybe repurposing existing sites to get closer, and have an advantage there for transportation purposes specifically.

If you look at the ports of Charleston and Savannah for example, record years, amazing years. You're talking about over 20% increase in growth versus last year for both of those markets. And specifically, Savannah receiving over 5 million TUEs or containers coming in this fiscal year. It's incredible. And people are looking at other alternatives for importing goods as we see backups in both New York and LA markets.

- Hey, Greg. How much of the shift and the changing trends because of COVID? How much of this do you view as permanent versus something that might be a little bit more transitory?

GREG HEALY: That's the question every wants to know right now. Here's what we know. Here's what we believe we know. We anticipate e-commerce being about 26% of all retail sales in America by 2025. And we believe also that every billion dollar increase in retail sales and e-commerce represents about 1.2 million square foot requirement for industrial property. Now, if we get to 26% by 2025, that's a pretty significant number. But the rate of expansion in e-commerce is expected to slow down a little bit in the next couple of years. We've hit this sort of threshold thanks to COVID-19, and now people are kind of adjusting.

Some people, as we mentioned the last piece here, are going back to retail brick and mortar as well. But if it increases to 26%, we still believe there's a higher threshold industrial requirements that we still haven't even counted yet. And that's for things like manufacturing on shore again, people looking at resilience in supply chain, global instability. What does that mean? And also, being able to produce closer to home. We have right now a highest number of people working in manufacturing in 37 years, but we still have a deficit of 500,000 people working in those spaces. So if we can continue to reinvest in the United States, and bring some of those jobs to United States, we'll still have a large requirement for industrial space.