Riding a wave of demand, First Industrial profits rise in Q1

“It’s still a landlord’s market and will be for some time,” Chicago-based REIT's CEO said
By John O’Brien | April 24, 2019 02:00PM

First Industrial President and CEO Peter Baccile

UPDATE, May 1, 2 p.m.: Benefiting from a booming national industrial real estate market, First Industrial Realty Trust saw its earnings rise in the first quarter.

The Chicago-based industrial REIT reported net operating income rose to $74.4 million, nearly 6 percent higher year over year. Funds from operations ticked up 12 percent to $53.7 million in the quarter compared to the same period in 2018. The REIT’s national portfolio includes some 66 million square feet of space in 19 states, including Illinois, California, Florida and New Jersey.

National demand for industrial space hit an 18-year high last year, helping the market keep pace despite a surge in new developments.

“On a national level, demand and supply were on an equilibrium,” Peter Baccile, First Industrial’s president and CEO, said during an earnings call Wednesday morning. “It’s still a landlord’s market and will be for some time.”

While occupancy rates at First Industrial properties did dip slightly from the fourth quarter, from 98.5 percent to 97.3 percent, they remained strong. Baccile attributed the drop to seasonal factors in the first quarter of every year — occupancy stood in 97.1 percent in the first quarter of 2018 — and expected the numbers to rebound as the year progresses.

The REIT also reported same-store net operating income growth of 3.2 percent, with cash rental rates up 8 percent, and 13 percent on 2019 rollovers signed year-to-date.

“The conditions remain favorable for significant rent growth,” Baccile said.

That stability in the market can be attributed to developers moving at a more measured pace than they did in the mid-2000s, when publicly-traded REITS were backing a bonanza of industrial construction, experts have said. And the demand resulting from the rising e-commerce industry isn’t going away soon.

Company officials said the industrial gravy train of late has led to an increase in investors and developers looking to get in on the action, particularly foreign investors, officials said.

“The amount of capital that is looking for a home in industrial has increased significantly,” Baccile said.

A report this week showed industrial investment from China and Canada reaching an all-time high in the United States, with total foreign investment tripling last year in the L.A. area industrial market.

The top five U.S. markets for foreign investment in industrial real estate last year were: L.A. with $910 million; Dallas/Ft. Worth with $849 million; Chicago with $618 million; Atlanta with $475 million; and New York City with $414 million. Miami was out of the top 5, but still saw $330 million in overseas investment.

This story has been updated to eliminate an erroneous statement about First Industrial’s vacancies.