Demand for Modern Industrial Facilities Fuels the Pipeline
Large and small tenants seek greater efficiency and wellness features.
This year, online retailers kicked off the holiday shopping season earlier than usual, but e-commerce—and with it industrial real estate—is booming all year round. According to the Urban Land Institute’s semiannual real estate economic forecast, industrial rents will be stable in 2020, while growing 2.5 percent in 2021 and 4 percent in 2022.
“Industrial has been at the head of the class for some time, and that trend appears to be accelerating with more equity capital and debt capital looking to expand in industrial,” said Alan Pontius, senior vice president & national director of the office and industrial division at Marcus & Millichap.
Amazon has ramped up development plans—unveiling new fulfillment centers in Nebraska and Texas—but much smaller players are getting into the game as well.
“We are seeing a very interesting opportunity in industrial spaces that are utilized as shared space warehouses,” said Lisa Song Sutton, an entrepreneur and member of the executive team at Elite Homes Christie’s International Real Estate in Las Vegas, adding that local and mom-and-pop owners have seen increased demand and are now in the market for warehouse space.
Michael Podboy, president of CA Ventures’ industrial division, has also observed an acceleration of new construction in the sector: “The leasing market is accustomed to having spec industrial to lease. It’s not a market where everything’s built to suit. That (need) continues to push forward even in the face of what we’re going through. People want that new modern product to fulfill their logistics and e-commerce needs.”
Certainly green and smart building features are in demand, but Podboy notes that landlords can also differentiate themselves with newly built facilities that offer more efficiency like having greater clear height (so you need fewer forklift drivers) or a more pleasant employee experience with more amenities like skylights and better HVAC systems.
“When you look at e-commerce or supply chain or logistics, between 50 and 60 percent of the cost is labor and materials,” adds Podboy. “Real estate in the supply chain represents only about 5 to 10 percent of the cost.”
Accelerated e-commerce adoption and higher inventory levels have the potential to generate 400 MSF or more of additional U.S. logistics real estate demand over the next two to three years, according to Melinda McLaughlin, vice president of research, Prologis.
“Some of this demand has already surfaced as retailers have adjusted their supply chain networks in response to the coronavirus pandemic,” adds McLaughlin. “We believe that meeting consumer expectations for fast delivery and the need to optimize transportation costs will drive companies to further expand their logistics operations and look for additional warehouse space—in particular to fulfill that last leg of delivery to urbanized and dense population centers.”
Sector Insights rotates among office/medical office, industrial, retail, multifamily, self storage and hotel/hospitality.