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Where to invest money in a pandemic? Many are betting on warehouses

The pandemic has shown how industrial real estate may be a safer investment than retail or office space.

When investors look around today’s sluggish economy for a place to put their money, they see a world full of uncertainty.

The current stock market “scares people,” said Mike Davis, vice chairman of commercial real estate services firm Cushman & Wakefield, the bond market “pays next to nothing” and of course, “you don’t want to own a shopping market right now.”

Increasingly, they are choosing to invest in warehouses — and the coronavirus has only hastened this trend.

At a time where preventing the spread of germs has necessitated companies shifting en masse to working from home and more consumers shopping online, the future of both office space and retail remains unclear. But in industrial real estate, which encompasses warehouses and manufacturing spaces, an area that already had momentum is seeing a boom.

Leasing of industrial real estate in the Tampa Bay area accelerated in the second quarter and was the second strongest quarter on record, according to Brian Alford, director of Florida market analytics for CoStar, a national commercial real estate data company with an office in Tampa. Meanwhile, office and retail had one of the worst leasing quarters that either sector had seen in a decade, he said.

Davis said he’s seen investors who traditionally have placed their money in hotels, retail or office space, in addition to new Florida residents moving from the Northeast, all shifting their cash to industrial real estate.

It didn’t take a global pandemic for investors to know that online shopping, and the warehouses that it requires, is a growing sector where there are profits to be made. Momentum in industrial real estate started a couple of years ago, said Davis, but the need for it was crystallized when it became the safest sector of commercial real estate after the pandemic hit.

Now, he said he sees about 10 to 15 buyers for every “decent industrial listing.”

“Because of the pandemic, by year’s end ... for an e-commerce shift, we’ll be where we thought we would be three years from now,” Davis said. “We made a huge jump past projections.”

Related: What Amazon’s Polk County expansion means for Tampa Bay

Bob Krueger, managing principal of Brennan Investment Group, a Chicago private real estate investment firm that focuses entirely on industrial real estate in Florida and other states, said the competition for land to build more warehouses has been more fierce than ever.

“All the prime sites on the I-4 corridor between Tampa and Orlando are pretty much gone now, so people are going to Ocala, Apopka, north Groveland,” he said.

Brennan Investment Group recently purchased a grouping of warehouses in Plant City that it plans to lease out and sell, and it broke ground on what will be a 1 million-square-foot warehouse in Lakeland. With the way prices are going, Krueger said they can expect to make about $5 million annually in rent on a property like that. Five years ago, it was probably $500,000 less, he said.

One of the buildings on the industrial property in Plant City recently purchased by Brennan Investment Group, which used to be occupied by a food company called Paradise Inc.
One of the buildings on the industrial property in Plant City recently purchased by Brennan Investment Group, which used to be occupied by a food company called Paradise Inc. [ Courtesy of True Blue Communiciations ]

Michelle McMurry, Cushman & Wakefield’s associate director of research for central and north Florida, said the Tampa Bay area, especially Hillsborough County, is advantageously located for companies looking to ship goods across the state.

“You basically can get anywhere in Florida and southern Alabama and Georgia within five to six hours of Tampa,” McMurray said.

She said Hillsborough saw more industrial properties complete construction in 2019 than any time since Cushman & Wakefield starting tracking it in the 1990s, and “2020 is looking like it’s going to be close as well.”

The Orlando area has typically been thought of as the “darling market,” said Davis, the vice chairman, because it’s even more centrally located than Tampa. But the coronavirus has shown how a highly tourism-dependent area like Orlando carries certain risk, giving the Tampa area an advantage in that category.

Regardless, “people need stuff,” Davis said, “and that stuff needs to be put in warehouses."