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2020 Industrial Space for Lease Review & Outlook for 2021

Industrial Space for Lease Remains in Hot Demand

Despite the extraordinary challenges of 2020 including the global pandemic, the election and the economic uncertainty that came from both, industrial property sector fundamentals are encouraging. According to Statistca Research Department the national vacancy is at near historic lows and the lowest of the commercial asset classes with a 10% vacancy rate. E-commerce continues to be the most significant driver of demand. This demand has surged since the beginning of the pandemic.

Even on smaller industrial assets tracked by the National Association of Realtors (NAR/REALTORS®), as reported in their Commercial Real Estate Trends & Outlook, July 2020 Report, the industrial market is the strongest of the commercial real estate sectors given the expected continued and constant growth in e-commerce based on consumers continued trend toward online shopping and delivery.

Why is Industrial so solid now?

The “Amazon effect” is often credited for the strength of industrial real estate and has become well known terminology. What is the Amazon Effect?Investopedia definesThe “Amazon effect” as the impact created by the online, e-commerce or digital marketplace on the traditional brick and mortar business model due to the change in shopping patterns, customer expectations, and a new competitive landscape. Amazon delivery has become a new normal for a significant portion of American households. The Amazon effect has fundamentally and permanently changed how consumers buy product and their expectations for delivery which is “why wait?”.

The pandemic has also led online grocery to explode as many households who had never before ordered online, now use it regularly. This trend is expected to continue post-pandemic.  CBRE estimates that cold storage facilities alone are likely to grow by as much as 100 million square feet by 2025 which is a 47% increase from the current 214 million square feet (NAIOP, The Cold Storage Market is Heating Up, Spring 2020 Issue).

In addition to e-commerce, the pandemic has led to a burst of BOPIS (buy online, pick up in-store) which is also likely to become a well-known acronym as consumers become more familiar with the ease and convenience of this delivery method.

Through our own CoeoSpace database, we have seen significant industrial product get leased in the past 6 months in strong industrial markets including Chicago, Houston & Dallas. The largest industrial markets including Inland Empire, California and Eastern Pennsylvania/Southern New Jersey continue to grow and are completing record new constructions projects.

2020 Year End Projection

2020 year-end absorption is likely to be 200 million square feet with new product delivery at an anticipated all time high and likely to reach just over 100 million square feet based on most major industry players’ research. There is plenty of new construction underway and the demand for well-located, well-built industrial space is currently almost keeping up with this supply. This balance will be important to watch.

2021 Outlook and Beyond

It seems clear that we will continue to see the growth of e-commerce and direct-to-consumer delivery channels for the foreseeable future. As depicted below, JLL projects growth of over 1 billion square feet of industrial space by 2025 as developers and investors are ready and eager to meet the continued demand.

These new construction projects will be state of the art, high tech industrial space that will allow occupants to leverage artificial intelligence, machine learning, robotics, and drones which will allow them to maximize all links in the supply chain.

Industrial commercial real estate is clearly the asset class to watch…

Sources: JLL, CBRE Global, Cushman & Wakefield, NAIOP, Statistca, National Association of Realtors (NAR)

Written By: Sheila Samii Matuscak

CRE in a Post-Pandemic World

When Rip Van Winkle falls asleep in the Catskill Mountains just before the Revolutionary War, he doesn’t wake until twenty years later—beard grown a foot and a rotting, rusty musket by his side—to a post-war world that’s very different from the one he remembers.
While it’s a bit much to suggest that we will emerge from our current isolation to find a world as altered as the one Washington Irving presents in “Rip Van Winkle” (although self-isolation beards do seem to be a thing), there will certainly be changes, from how we greet colleagues (no handshakes, please) to what we require from our office space.
Change, even positive change, like a promotion or a new office, can be hard—and the reasons behind today’s workplace changes are anything but positive. After all the worry and loss, we look forward to the return of normalcy. Yet we may find that the workplace we’ve been so eager to return to differs considerably from the one we left behind.

Personal safety, always a top priority for employers, has a new look—one that requires keeping people at a safe distance to help limit the spread of disease. The productivity benefits related to open floor plans and desk sharing are taking a necessary back seat to the need for individual workspaces and agile work-from-home options. To return workers to the office safely, companies are having to make significant adjustments.
Your company’s return-to-work plan may begin with your schedule—possibly alternating two weeks at home with two in the office, in an effort to decrease office population density. When it’s your day to return, give yourself a little extra time to actually make it to your desk—there may be a wait at your now voice-activated elevator, due to the limited number of people permitted inside. Arriving at your floor, you take a circuitous route down designated one-way hallways intended to limit your interaction with colleagues. You get to your usual desk in the open office plan only to discover that it has been moved six feet away from your coworkers’ desks, and “sneeze guard” partitions have been installed. The on-site gym has been shuttered, and in the office cafeteria, seating is limited to a single person per table.
While this degree of change may seem daunting, it’s likely coming. Cushman & Wakefield, a commercial real estate firm, has already created “the six foot office,” which uses design tools such as some of those described above to keep coworkers at least six feet apart, thus mitigating the risks inherent in returning to work.
Businesses in the U.S. are also taking cues from those with offices in parts of the world where employees have begun their return to work. As Jena McGregor of the Washington Post reports:
“IBM, which has begun adding back workers in several locations in China and South Korea, has developed global standards for returning to the office. They include bringing back those who need access to on-site equipment or labs first, staggering arrival times so elevators don’t become too crowded, eliminating buffets and shared serving tools in cafeterias, and taking out furniture in other spaces to ease social distancing concerns in conference rooms.”
Other companies, like Intel, have also implemented strategies to limit the spread of disease, such as requiring more frequent and visible office cleaning, distributing masks, providing disposable plastic covers for shared keyboards, and screening for symptoms.
As Uri Berliner of NPR points out, some protective measures require making judgment calls, such as deciding whether to mandate temperature checks and contact tracing. Along these same lines, sensors used to monitor desk usage, once touted as a way to maximize utilization, are now being investigated as a way to ensure that those same desks are not being used too much, and are being cleaned at appropriate times.
At this early juncture, much is still unknown, including whether companies will, as some people posit, ultimately require less office space. As Rani Molla reported for Recode:
“In short, it is too early to tell if companies will lease less space,” Julie Whelan, Americas head of occupier research at commercial real estate services company CBRE, told Recode. “While they may need less space because some people may conduct some of their work remotely, they may also need more space to provide the social distancing that employees may feel they need to be comfortable.”
It’s also too soon to tell how many of the changes now being implemented will remain in place even after we have a COVID-19 vaccine or effective treatment. It seems likely, however, that the ones most apt to stick around will be those that provide benefits beyond mere social distancing. When Coeo Space made the decision to offer live remote tours of commercial real estate properties, for example, its short term goal was to allow landlords and tenants to continue to safely find and visit commercial real estate spaces while social distancing, but long term, these remote tours will offer the continued benefit of cost and time savings to those attempting to locate and secure property from distant locations.

Returning to old Rip Van Winkle and the new world he found himself in, let me assure you that everything worked out just fine. His grown daughter took him in, and although it was some time before he could fully comprehend all that had changed while he slept, he eventually resumed his old habits and did very well for himself indeed.
We hope it will be the same for all of us, in time.
 
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by: Kim Pierson
for Coeo Space

How to film a remote tour now — Our team will edit and do the rest.

  1. If you’re using an iPhone, go to your settings > iCloud > Photos > enable photos/videos to go to your iCloud. Now you are saving the best quality footage.

  2. Turn your phone or camera landscape and set it to video mode

  3. To start video: keep both of your elbows at your hips to stabilize the camera and keep it steady during shooting of the video.

  4. Walk starting at front, include all amenity space, lobby, elevator exposure, suites, etc. Walk through any available spaces.

  5. Make each area a separate video and label them (ex: Gym, Conference Room, etc.)

  6. Once you email it to us, we will build you a remote tour and add it to your listing on Coeo Space upon your approval. It’s that simple!