Posted on February 11, 2020 · Posted in Industrial / Flex

The industrial real estate market has seen 38 consecutive months of growth.

Industrial properties have been of great interest among investors these past several years. There are examples of real estate holders selling entire portfolios of other real estate classes to be totally invested in the industrial sector. But what will happen in 2020? Strong continued growth? Continued growth but at a slower pace? New dynamics in design and site selection?

The nature of industrial demand keeps evolving. Many factors will impact the industrial sector in 2020, according to many experts in the industrial real estate market. One can look at such factors as e-commerce growth and demand for shorter deliver times; increased demand for cold storage and being closer to the consumer regarding demand for groceries, flowers, berries, proteins, poultry, produce and pharmaceuticals; increased growth of reverse logistics (handling returns of merchandise); increased investment from institutional investors; the 2020 presidential election and legalization of cannabis to name a few.

Here are some thoughts about what will happen in the industrial market in 2020:

  • Demand for “last touch” (aka “last mile”) will continue to grow in 2020 because consumers now demand same-day and next-day delivery. Therefore, retailers are intensifying their delivery efforts to complete with e-commerce giants like Amazon and Walmart. This growth will increase demand for the conversion of traditional retail space to distribution facilities.
  • Demand for additional cold storage space estimates range from 100 million to 150 million square feet by various market research studies.
  • Shortages of available labor will significantly impact warehouse and distribution properties in 2020. New technologies are being developed and are being deployed in the warehouse and distributions spaces and this is increasing the importance of human labor and demand for a more highly skilled workforce.
  • Investors/developers of industrial properties will be more committed to focusing on designing facilities that include upgraded amenities within the building and on-site that will attract and retain workers. These amenities may include higher-end restrooms, improved break and meal rooms, fitness centers and enhanced interior environmental controls.
  • As suburban office complexes and shopping malls are failing and becoming potential sites for a new type of industrial mixed-use, 2020 may see an increase in industrial development coexisting with retail uses, with industrial space added onto these retail centers or replacing some traditional brick-and-mortar stores or offices. This will depend on a change in public policy toward creating new types of zoning to permit this type of industrial mixed-use.
  • The industrial sector will continue to remain a very attractive investment, especially with institutional investors. The volume of investment may decrease compared to 2019 but will still be significant.
  • Some of the major impediments for industrial development will include a very competitive market to acquire land; municipal regulations; poor infrastructure; shrinking due diligence time due to competition for sites; time constraints to meet tenant demand; educating the public about today’s “industrial uses” compared to the stereotype industrial use; the employee drive time to the locations; availability of labor and innovation to “create” the industrial site for the 21st century.
  • Legalization of cannabis may accelerate in 2020 and this could mean increased demand for industrial real estate to meet the needs for cannabis production and distribution. However, there is still hesitancy of some owners to lease their facilities for use by the cannabis industry.
  • There will be increased opportunities for repurposing of old industrial buildings that are located close to consumers. This also will mean increased flexibility of configuration of industrial spaces for second generation use of the space.

The beginning of this new decade, 2020, will bring more evolution to the industrial market. Some industry experts are labeling this evolution as going from Industrial 1.0 to Industrial 2.0. Industrial 1.0 being the traditional manufacturing-centric industrial market with heavy infrastructure, significant sensitivity to business cycles, having a mixed long-term outlook and following the paths of goods movement.

And Industrial 2.0 being customer, population and multi-sector centric with clean manufacturing, following a path of where people live, multiple uses, flexible configurations and much more innovation.

It is safe to say that the industrial spaces of 2020 are “not your grandfather’s industrial space.”

 

Source: Reading Eagle

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