In 2018, industrial real estate has witnessed one of the most surprising surges in demand and construction—and there’s more to come. It’s a surprising twist to a niche that, in earlier times, was originally thought of as limited to a handful of specific market needs.
Mainly, these included office blocks, shopping centers, and other structures that serviced a unique—and arguably outdated—consumer spending pattern. Today, however, a shift has occurred that’s redefining the industrial real estate sector and providing unprecedented new opportunities—for those keen enough to the trend.
It might be hard to believe, but demand is currently outpacing supply for industrial real estate. A CBRE report reveals a whopping construction of 35 million square feet for this type of structure. However, demand for it remains even higher—and unfulfilled—at a massive 42 million square feet. The result has been a substantive boom in the sector throughout 2018, offering as much profit for the market as it has disruptions.
The “why” is key to understanding the future of the market and where the trends will settle. Of all the variables, the most likely cause is e-commerce. For many in the know, this should not be too surprising. Online shopping and retail has dramatically altered the landscapes for countless industries. Real estate has been no exception and when it comes to this industrial niche, the ramifications have been enormous.
In 2017, e-commerce accounted for a stunning 9% of all retail purchases in the United States. Additionally, this is no one-off anomaly: the trend has been soaring over the last decade and is expected to continue. Some figures show that, by the year 2020, online sales will account for 12.4% of all retail purchases in the U.S.
According to David Egan of CBRE, there is still a great deal of speed “but we have seen a real significant shift in the diversity of demand from those types of users from the major markets to secondary and tertiary markets, which are smaller and don’t have as big of population centers.” Another factor to consider is the increasing demand for localized industrial warehouses. Amazon, for example, is constantly seeking ways to maximize speed delivery to customers.
However, a handful of mega-warehouses situated throughout the world fall short when it comes to precise, localized consumer needs. As a result, numerous industries are pushing for light industrial centers that are cheaper and take up less space.
Let’s Get Political
The current political climate can be attributed to a lot of unprecedented changes, but real estate has been massively impacted. Some analysts argue this is due, in part, to the President’s stated commitment to manufacturing and industry. Specifically, Trump’s $1.5 trillion infrastructure plan has many in the market hopeful for large booms in supply and demand.
As a corollary, the current Administration has also vowed to rebuild the country’s infrastructure on a public level, as well. Naturally, real estate often crosses over the public sector through quasi-private contracts, so this could also have an effect.
What’s in Store for the Future
Increasing digitization and automation has prompted the booming e-commerce industry. With all the benefits, industrial real estate has witnessed as a result, there are still some new disruptors on the horizon. One trend that’s poised to rock the world is advanced robotic automation. Warehouses will increasingly reflect AI advancements and are moving straight towards human-less environments. As a result, the way industrial real estate designs and caters to the market will only continue to evolve. Valbridge is here to help – whether through market analysis of existing space or ground up construction or valuing current positions. Contact us today at www.valbridge.com.