The recent Covid-19 pandemic and shelter-in-place policies are accelerating many political, cultural, and economic trends. This is particularly true in the industrial real estate market. Spurred by an e-commerce boom, the need for functional warehouse space continues to accelerate. Some analysts predict that the warehouse industry may require an additional 1 billion square feet by 2025.
Historically Strong Industrial Real Estate Market
The recently expanded need for industrial real estate comes upon already strong growth in the warehouse and distribution sector. Before the 2020 Covid19 outbreak warehouse demand was at historic highs. Since 2011, industrial rent has continued to increase as vacancy rates have fallen to all-time lows. As a result, industrial real estate properties have provided attractive, stable, long-term returns to investors. Due to healthy fundamentals and e-commerce’s growth potential, industrial real estate investments continue to be a safe haven during the troubled economic times.
E-Commerce Industry Boom Continues To Accelerate
By the end of 2019, e-commerce annual sales hit $602 billion in the United States. However, Covid-19 is adding fuel to the fire, and rapidly increasing e-commerce growth. According to an Adobe report released in June, total spending online in May hit $82.5 billion up 77% year-over-year. The online buying habits increased this may to levels only seen typically during the holiday season.
As a consequence, the recent increase has quadrupled the pace that consumers are using e-commerce platforms. Therefore, e-commerce titans are rushing to improve their capacity to provide goods, and as a result, expanding their real estate footprint.
What Does This Mean For Occupiers?
Despite the economic slowdown in many sectors of the economy, the market for warehouse and distribution space is on fire! The demand for spaces with significant clear height and ready-made for e-commerce logistics is historically strong. Although, for some tenants looking at older more functionally obsolete industrial properties tenants may have more cushion. Still, for tenants and purchasers looking to enter the market it is important to understand your business’ needs and be prepared to act quickly.
