Jun 13, 2024 - 0 Comments - Industrial -

Video: MSCI Executive Director Jim Costello Discusses Industrial Real Estate Insights and Updates

The Discussion: The Evolution and Outlook of the Industrial Real Estate Market


In a recent episode of America’s Commercial Real Estate Show the spotlight was cast on the industrial real estate sector—a segment that has experienced a dynamic shift from being the “dirty shoe” to a coveted asset class. This transformation, largely fueled by the pandemic and subsequent shifts in consumer behavior, has prompted keen interest and debate among investors and industry experts. Jim Costello, Executive Director of MSCI Research, joined the show to provide insights into the recent developments and future outlook of this sector. The subject matter of this conversation revolves around industrial real estate nationwide, thus it should be noted that insights might have diminished relevance to Miami area industrial property.

Pandemic’s Impact on Industrial Real Estate

The COVID-19 pandemic was a turning point for the industrial real estate market. As lockdowns forced consumers indoors, online shopping soared, driving an unprecedented demand for industrial space to accommodate the surge in e-commerce. Amazon, a key player in this sector, ramped up its leasing to meet the rising need for storage and distribution. Costello noted that this demand spike was partly temporary, driven by the pandemic’s extraordinary circumstances.

As vaccinations rolled out and normalcy began to return, the demand for industrial space stabilized. This rebalancing reflected a return to the pre-pandemic growth trajectory of online shopping, characterized by a slow, steady increase in demand for industrial properties. Costello emphasized that despite the temporary contraction, the long-term outlook remains positive, with steady growth expected as online shopping continues to evolve and expand.

Industrial Property Performance Amid Economic Uncertainties

The industrial real estate market has shown resilience despite the broader economic uncertainties. The Federal Reserve’s measures to curb inflation, including interest rate hikes, have impacted the overall economy but have had a nuanced effect on the industrial sector. While rising rates could potentially dampen investment, Costello highlighted that the industrial market continues to attract investors due to its predictable income streams.

He explained that although inflation has not declined as quickly as anticipated, the specific factors driving inflation—housing and automobile insurance costs—have minimal direct impact on the industrial market. This sector’s performance remains strong, supported by continued investor interest and the relative stability of cap rates. Cap rates, though increasing, have not risen as sharply as interest rates, thanks to the ongoing growth in rental income, which helps maintain attractive investment returns.

Future of Industrial Real Estate

Looking ahead, the industrial real estate market is poised for continued stability and growth. Deal volumes, while slightly down from the previous year, remain high compared to pre-pandemic levels. The sector’s attractiveness as an investment is reinforced by its ability to generate stable income, even in a higher interest rate environment.

Costello observed that the challenge for investors now lies in balancing the costs of new construction with the benefits of existing assets. Inflation has driven up building costs, making new developments less economically viable and thus reducing competitive pressures. This scenario creates a favorable environment for existing industrial properties, which continue to be in demand among investors seeking reliable returns.

Interest Rates and Economic Influences

Discussing the outlook for interest rates, Costello pointed out that the Federal Reserve’s future actions would likely be influenced by ongoing inflationary pressures and broader economic conditions. While predicting exact movements is challenging, the interplay between inflation, economic growth, and political considerations will shape the Fed’s decisions. Investors in industrial real estate should prepare for a potentially stable interest rate environment as the market adjusts to these dynamics.


The industrial real estate market has emerged as a robust and attractive asset class, benefiting from shifts in consumer behavior and economic conditions. Despite challenges such as inflation and rising interest rates, the sector’s fundamentals remain strong, driven by steady demand and investor confidence. As the market navigates these complexities, industrial real estate continues to offer compelling opportunities for investors seeking stability and growth. The insights shared by Jim Costello in this video underscore the sector’s resilience and potential, making it a focal point for investors in the evolving landscape of commercial real estate.