For much of the commercial real estate industry, the COVID-19 outbreak spelled doom and gloom. For months, commercial offices stood unused. Foot traffic in already struggling retail areas decreased. Is there one ray of hope? Real estate for the industrial sector.

 

Industrial real estate was a developing sector even before COVID-19, thanks to rises in e-commerce sales boosted by giants like Amazon.

 

When in-person disease transmission became common in early 2020, however, e-commerce boomed. The pandemic hastened the shift from physical stores to digital buying by about five years, according to statistics from IBM’s U.S. Retail Index.

 

This has resulted in a surge in demand for warehouses, distribution centres, and fulfilment centres that can support same-day and next-day delivery networks. Industrial property owners and operators should be informed of the present market scenario in order to fully capitalise on the boom.

 

There isn’t going to be any more land.

 

It’s difficult to find vacant property for new construction. To facilitate company operations, industrial properties require a larger footprint than their office and retail equivalents, as well as huge parking lots for delivery trucks. This size of vacant land does not grow on trees.

 

The term “industrial real estate” refers to a wide range of properties, including:

 

1.Facilities for light manufacturing

2.Heavy-duty manufacturing plants

3.Manufacturing plants for food

4.Food and beverage goods are stored and distributed in temperature-controlled facilities. As the need for fresh, healthful food grows, cold storage units are a hot asset type.

5.Cannabis-growing facilities for medical and recreational use

6.Warehouses, fulfilment centres, sortation centres, and last-mile delivery stations are critical for delivering goods to retail stores and enterprises, as well as supporting e-commerce operations.

 

According to CBRE Econometric Advisors, new industrial completions are likely to increase by 29% next year. Despite this, it’s feasible that demand will outstrip supply.

 

A Leasing Market That Is Landlord-Friendly

In the second quarter of 2021, average industrial property rentals in the United States reached new highs, with a 5.1 percent year-over-year increase. Industrial vacancy rates plummeted to 4.8 percent within the same time period, one of the lowest rates ever recorded.

 

The same can be said for industrial sites that are still being built. According to JLL, the pre-leasing rate for new industrial spaces reached an all-time high in the second quarter of 2021, with almost 61.3 percent already leased.

 

To fill vacancies, some office owners and operators have been obliged to provide more liberal leasing terms. The strength of the industrial sector, on the other hand, is encouraging industrial property owners to stick to typical lease terms of 10-15 years.

 

The Struggle with Work

 

As internet sales grow, so does the demand for professional warehouse workers.

 

Tenant experience has traditionally been a word used only in the context of commercial offices. However, in a labour market that is already competitive, some industrial buildings are increasingly exploring amenities that assist tenants attract personnel by creating a safer, healthier environment.

 

Industrial tenants are projected to want more human-centric operations, and property teams will be able to help them. According to another JLL research, only 8% of warehouse workers have access to basic air conditioning.

 

As COVID-19 persists, improved wellness measures such as air quality systems and natural lighting are projected to play a significant role in the future of industrial real estate. To help its tenants win the competition for talent, industrial centres will certainly follow in the footsteps of commercial offices and provide amenities like fitness centres and outdoor spaces.

 

To meet labour demands, several analysts expect that industrial properties may shift closer to urban centres, generating important concerns about the future of industrial real estate.

 

Sales of industrial real estate are on the rise.

 

Investors are displaying a strong desire for industrial real estate sales, despite the fact that investments in office and retail buildings remain sluggish.

 

From $16 million in the first quarter of 2020 to $19.1 million in the first quarter of 2021, the average industrial property price climbed by 20.6 percent. Rents are also at an all-time high.

 

Industrial buildings are desirable to investment corporations for a variety of reasons:

 

  • Buildings are frequently single-tenant properties with long-term leases, resulting in less management stress and more regular repairs for property teams.
  • The majority of leases are triple net, which means the renter is responsible for all property maintenance.
  • Industrial leases typically last five to 10 years, but they can last up to 25 years, providing investors with a steady stream of revenue.

 

Non-traditional types of investing are being pursued by investors anxious to get in on the activity. Investing in an industrial real estate investment trust (REIT) and real estate crowdfunding are two examples.

 

Southern California, Atlanta, Philadelphia, and Dallas are all hot acquisition markets. This is owing to the strong anticipated population growth, cheaper taxation, and pro-business state administrations in these states.

 

Sustainability in the Spotlight

 

Investors, consumers, and regulators will put growing pressure on industrial owners and property managers to cut carbon footprints by 2021.

 

Carbon neutrality in the supply chain means a company must remove the same amount of CO2 from the atmosphere as it emits during the development, manufacture, and distribution of goods and services.

 

Carbon emissions from supply chain operations that enable e-commerce are significant. As a result, major firms are announcing carbon neutrality commitments. For example, Amazon has committed to becoming carbon neutral by 2040.

 

This will necessitate investments in high-efficiency roofing and insulation, water conservation, LED lighting, rooftop solar panels, wind turbines, and other renewable energy sources in the industrial real estate industry.

 

It’s a Safe Bet to Invest in Industrial Real Estate.

According to one estimate, e-commerce growth in the United States will require an additional 1.5 billion square feet of industrial space over the next five years.

 

As a result, the current shifts in industrial real estate investing activity, supply chain, and warehouse space design are projected to continue.

 

Summary

Industrial real estate is a hot investment right now, due to the growth of e-commerce and the need for additional warehouse space. Sales prices and rents are at all-time highs, and investors are eager to get in on the action. Sustainability will also be a key focus in the coming years, as companies strive to reduce their carbon footprints.

 

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