SENIOR MANAGING DIRECTOR

The industrial real estate market has witnessed significant transformations in recent years, influenced by economic shifts, technological advancements, and changing consumer behaviors. Several emerging trends are shaping the landscape of industrial properties. The industrial sector is experiencing dynamic changes due to a number of societal and economic factors; the rise of e-commerce increasing demand for last-mile facilities, the continued growth of the Internet of Things and mobile devices and the increasing importance of sustainability and automation are just a few of them. The sections below provide a glimpse into some of the key trends that are evident in industrial subsectors, serving as a foundation for understanding the evolving nature of these portions of the industrial asset class.

The rise of e-commerce is driving demand for last-mile fulfillment centers and distribution hubs located closer to urban centers to ensure quicker and more efficient delivery of goods to consumers. In 2022, Forbes estimated that worldwide e-commerce sales were projected at $5 trillion with it expected to reach $6 trillion by 2024. This growth continues to put a strain on the supply chains. The portion of the supply chain that is often viewed as the most challenging part of logistics in e-commerce is the “Last Mile.”

The last mile is what the industry uses to define the final leg of a shipment and can often involve many stops with drops at each stop that are minimal. Forbes notes that complexity can also be increased as there can be multiple pickup points (store, home, distribution center), many delivery modes (owned fleet, outsourced fleet, autonomous, drone) and many destinations (home, business, pickup point, parcel locker). Because of this, there are inefficiencies and cost with last mile delivery that are growing with the growth of e-commerce in general. The ability to deliver the last mile service can directly affect the company’s reputation if not completed to the customer’s desire.

To complete this service, companies want to be located as close to the population centers that they deliver to as possible. One of the challenging aspects of finding these locations for a last mile facility is that in order to be located within close proximity to the users that will be served from the facility, it must be located in portions of the submarket with aging facilities. Empty lots of a sufficient size and the right location are almost non-existent in most cases. Further, the already constructed warehouse availability in these markets is shrinking as some of these buildings are being renovated into uses that are non-industrial such as retail, office, or multi-family.

This e-commerce market is expected to rise to $297 billion by 2030 and growing at a CAGR (compound annual growth rate) of 9.6% from 2022 to 2030. With the continued growth of online shopping, the need for strategically located industrial spaces is expected to increase and the competition with other uses for these industrial properties will continue to increase for last mile distribution centers.

The growing reliance on cloud computing and data storage led to an increased demand for data centers. The two fastest growing segments of the data center space are hyperscalers and edge data centers. Hyperscalers are typically defined as business-critical facilities that are significantly larger than typical data centers and are designed to support robust and scalable applications. These assets are typically owned by companies such as Google, Amazon, Microsoft or Meta. A growth forecast from Data Bridge Market Research indicated that the hyperscale data center market will grow at a CAGR of roughly 29.32% between 2023 and 2035.

Edge data centers are located closer to the users and their devices that collect and transmit data, or wherever data is being generated. Generally, these centers work as the go-between between the cloud or centralized regional data centers and IoT (Internet of Things) devices and their associated cellular tower sites. There is an expectation for IoT devices to grow 16% in 2023 to have an estimated 16.7 billion active end points. This would show a CAGR of 26.1% between 2023 and 2030.

These data center facilities are the hub of the new economy and play a fundamental role in our society and digital economy. Their reliability and growth are critical for the continued development of our economy into Web 3.0.

Environmental sustainability became a priority for many businesses, including those in the industrial sector. Developers and tenants started seeking eco-friendly and energy-efficient industrial properties, which not only align with their corporate social responsibility goals but also help reduce operational costs in the long run. Developers are incorporating more windows and skylights for natural light, energy efficient mechanical systems, and LED lighting that is activated by motion sensors in the warehouse areas. In low humidity and moderate climate locations, buildings can be fitted with passive systems that allow for natural ventilation and cooling. Some buildings are also fitted with eco-friendly roofs where the top of the building is partially or completely covered with vegetation.

As millennials and Generation Z become the dominant consumer base and workforce, their values and preferences significantly influence businesses and society. While it is good for the environment overall to use less energy and build sustainable properties, it is also important to attracting the best talent of the next generation to work within facilities. By keeping sustainable and green industrial spaces top of mind in development, the attracting of a future workforce may be easier.

The industrial real estate market’s landscape has evolved rapidly, reflecting the demands and challenges of a modernizing world. The sector is defined by an increasing focus on e-commerce and last-mile facilities to cater to the ever-growing online shopping trends. Sustainable and green industrial spaces emerged as a critical consideration for businesses seeking to align their operations with environmental goals.

While these trends have shaped the sector in recent times, it is essential to recognize that the real estate industry is ever-changing. To stay informed on the most current developments in industrial real estate, stakeholders must continually monitor new reports and research. As the world advances further into the future, undoubtedly, more innovations and trends will emerge, reshaping the landscape of industrial real estate once again.