Real Estate Roundup is a weekly rundown of developments in the world of industrial real estate used for logistics and transportation. This week: Industrial real estate performance forecast; trucking provides the key link for new gold mining project in Alaska.
Industrial real estate has survived, if not thrived, during this year's pandemic-induced recession. The reasons are well documented and well known, largely predicated on the strength of online commerce.
The Urban Land Institute (ULI), a Washington-based think tank focused on land use and real estate, recently issued some numbers that show just how well industrial real estate has performed, especially in comparison to other real estate categories like office, retail and hotels.
According to ULI's survey of economists and industry analysts, rental income from industrial real estate is forecast to grow at an average annual rate of 2.1% from this year through 2022. That may sound anemic, but it compares to projections of 0.03% average yearly growth for multifamily real estate, a decline of 0.5% for office buildings, a 2.3% drop for retail and a 3.3% decline for hotel revenue per available room.
Vacancy rates are also forecast to hold up well for industrial properties. Industrial real estate is forecast to be at 7.3% in 2022, lower than the 20-year average of 10.2%. In contrast, vacancy rates for office buildings and retail space are both expected to be higher than 20-year averages.
Those figures will fuel superior financial returns for investors in industrial real estate. Returns as measured by the National Council of Real Estate Investment Fiduciaries are forecast at a yearly average return of 6.9% for industrial properties through 2022. Multifamily is expected to return an average of 3.3%, office 0.9% and a 4% decline for retail.
Even though the outlook appears bleak for retail and hotels, other types of commercial real estate are now projected to fare better in the coming months than earlier this year, when economists had taken a very pessimistic view of how COVID would impact real estate.
"The worst fears of earlier this year have mostly eased," said William Maher, principal of Maher Strategies, who worked on the report, titled "Leading real estate economists are signaling that resilience and underlying strength will likely win out over uncertainty and risk."
The survey polled 43 economists and real estate industry analysts and was conducted between Sept. 25 and Oct. 9.
A Texas company is touting the benefits of trucking as a primary mode of transportation, citing trucks as a big reason why its new gold-mining joint venture will work.
Contango ORE Inc., based in Houston, formed a joint venture in September with Kinross Gold Corp. to operate several gold mines in central Alaska. The new venture holds the legal right to mine gold ore on a 170,000-acre tract.
The mining site is located in an extremely remote part of Alaska, several miles off the Alaska Highway. The nearest town, Tok, has a population of about 1,250. The Canadian border is 55 miles to the east.
It would be extremely expensive to set up ore-processing facilities at the mining site due to its remote location, according to Contango. Instead, Contango and Kinross will truck the ore from the mines and carry it to the Kinross-owned Fort Knox mill near Fairbanks.
That's a long haul of about 250 miles to the northwest, but the venture wouldn't be financially feasible otherwise.
"Trucking high-quality ore from Peak Gold to Kinross' Fort Knox mill is an ideal solution to fast-track the project to a production decision," Contango CEO Rick Van Nieuwenhuyse said in a news release. "By not having to permit and construct a mill and tailings facility on site, we would greatly reduce the costs, environmental footprint, permitting and construction risks, and reduce the timeline to potential production for Peak Gold."
Production at the mine is expected to begin in 2024.
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