Industrial Space for Lease Is 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. Industrial space for lease is in extremely high demand. 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 is the most significant driver of demand. This demand has surged since the beginning of the pandemic. CoeoSpace predicts that this demand will only increase in 2021. Therefore, this is amazing news for industrial owners and investors!
Why is Industrial so solid now?
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. The trend toward online shopping and delivery is not likely to end anytime soon or ever.
The “Amazon effect” is often credited for the strength of industrial real estate and has become well known terminology. What is the Amazon Effect you ask?Well, Investopedia defines The “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. So, Amazon delivery has become a new normal for a significant portion of American households. As a result, the Amazon effect has fundamentally and permanently changed how consumers buy product and their expectations for delivery which is “why wait?”. I love to buy product immediately when I need it. I’m sure you do too!
The pandemic has also led online grocery to explode as many households who had never before ordered online, now use it regularly. So, 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).
What is BOPIS for industrial space for lease?
In addition to e-commerce, the pandemic has led to a burst of BOPIS (buy online, pick up in-store). BOPIS will become a well-known acronym. As consumers become more familiar with the ease and convenience of this delivery method, they will demand BOPIS.
Through our own CoeoSpace database, we have seen significant industrial product get leased in the past 6 months. This is amplified 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. These markets are completing record new constructions projects.
2020 Year End Projection
2020 year-end absorption is likely to be 200 million square feet. Because, new product delivery is at an anticipated all time high. This is 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. This 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