COVID-19 and the Rise of Industrial Real Estate
Eager to climb aboard the rising tide of e-commerce, a growing number of investors are now looking to increase their exposure to industrial property.
Even international investors are pouring money into industrial real estate here in the U.S. With limited opportunities in the burgeoning market abroad, many investors are looking offshore to increase their allocation to industrial assets – particularly in the U.S., the birthplace of e-commerce giants like Amazon, Walmart and Wayfair.
While no industry is totally immune to the COVID-19 crisis, there is good reason to be optimistic about the industrial sector moving forward. From a real estate perspective, experts anticipate industrial to be highly resilient relative to other asset classes.
Here are three changes in the U.S. industrial and logistics industries brought on by the COVID-19 crisis that will likely contribute to the industry’s further success:
1. Accelerated adoption of e-commerce. Online retailers in the US are ramping up their businesses to respond to surging demand for online shopping as physical stores shut their doors and consumers across the country are forced to shelter in place. Amazon has announced it will hire 100,000 workers for its fulfilment centers and transport operations and increase the pay of existing workers as it seeks to meet the elevated demand. Many consumers who otherwise would not have previously ventured to make a purchase from Amazon via their phone or mobile device are now placing online grocery orders weekly. While the conversion to online purchasing has been somewhat foisted upon them by circumstances, it’s likely that after experiencing the ease and convenience of the process of online shopping, many people will continue to order more products online after social isolation restrictions are lifted. It’s this rapidly accelerating adoption of e-commerce caused by COVID-19, along with the impending rollout of the high-speed 5G network in the US that stands to truly exacerbate an already robust behavioral trend towards online shopping. And as that online commerce pool expands, we know that industrial demand in the US will follow.
2. Rise in inventories projected as e-commerce industry learns from crisis. Another significant change we are beginning to observe as a result of the COVID-19 outbreak is that companies are contemplating the need to hold greater amounts of inventory to buffer their future supply-chain responsiveness. Nearly 75% of U.S. companies have experienced supply chain disruptions because of virus-related transportation restrictions, doubling lead times for a majority of businesses, particularly those importing goods from China, according to a survey by the Institute for Supply Management. Armed with a heightened awareness of the negative impact supply chain disruptions can have on their business, many companies are now realizing the need to keep deeper product stocks on hand, which is increasing their projections for future warehousing needs. Early indications from management of publicly listed industrial real estate investment trusts (REITs) in the U.S. have indicated a potential 5-10% increase in inventories being held by their tenant base as a result of this trend.
3. Onshoring and reshoring likely to gain momentum. As the risks inherent to global supply chains have become more apparent, some companies are fundamentally rethinking where they produce their goods and how they configure their supply chains. Stability is supplanting efficiency as a top priority. Many companies that currently base a significant amount of light assembly and manufacturing operations in foreign countries, such as China and India, where they are able to access lower labor costs and overheads, are now reconsidering this model. Exposed by the COVID-19 pandemic, a number of large corporations have now come to the realization that the cost of supply chain interruptions far outweighs the incremental cost of domestic labor, and they are registering the need to priorities proximate access to inventories and more localized warehouse and manufacturing locations. This trend, as it continues to pick up momentum, will continue to have users of industrial facilities looking to “re-shore” supply chain locations back to the U.S.
These recent developments bode well for industrial real estate over the short and long-term as they will provide an additional boost to already robust demand for high-quality, well-located bulk warehouses and light industrial properties.
For more information about the recent trends on Industrial Real Estate you can also check out our Podcast on the Podcast Page.
The Industrial Team at ComReal is happy to assist businesses and owners in the leasing and sales on Industrial Properties. You can contact them at 786-433-2380.