What Is Driving The Demand For Industrial Real Estate?

The industrial real estate market has been on quite a roll for the past few years and the outlook remains strong. According to the World Economic Forum, the industrial and manufacturing industries are on an upswing that has not been seen for more than 100 years — a “fourth revolution”, so to speak. 

With new and exciting innovations in science, commerce, and technology — combined with our current economic climate — there are a variety of factors and trends driving the demand for industrial real estate. 

Let’s take a look at these trends, and what potential buyers and sellers need to think about. 


#1. E-commerce is booming, and that’s no surprise  

It is no secret that E-commerce is booming, mainly thanks to Amazon and its effect on how consumers shop. In fact, E-commerce sales are expected to surpass $735 billion in the next 5 years.  This incredible momentum has caused companies to reexamine the way goods are delivered to consumers. 

Now more than ever, orders are expected to be fulfilled and delivered at lightning speed. This has prompted warehouse and industrial space to become an extremely hot commodity, specifically in urban areas where space is often scarce. With no suggestion of decline in e-commerce in the near future, buyers should look into industrial properties now before rates go up, and sellers should take advantage of the high demand.


#2. Technology and automation are on the rise

Robotics, artificial intelligence, and automation is no longer a vision of a distant future; it is the present. With the influx of these new, advanced technologies traditional industrial space has adapted to use them to the sector’s advantage. Building designs, for example, have been relooked and are often using height over width to accommodate robotics. This is appealing to many businesses who choose to utilize technology to its highest potential, adding additional demand to the industrial real estate market. 


#3. Investors and developers are warming up to Cold Storage 

Another rapidly changing industry in the U.S is the grocery industry. Studies show that current consumers greatly value convenience, quality and time. This has led to an increase in grocery and pharmaceutical deliveries. The desire to get fresh items, at the best prices without leaving your home has created the need for new and advanced cold-storage options in the industrial real estate sector. In fact, cold-storage products are anticipated to grow to $100 billion in the next 5 years, not including pharmaceuticals. That being said, with cold-storage warehouse space already exceeding 85%, it is predicted demand will require an increase of more than 35 million square feet of space in the next 5-7 years. 


#4. The Economy and tax reform

The economy has been steadily improving over the past few years. With business-friendly tax reforms and growing enthusiasm for maintaining jobs in the U.S, the country is poised to see an increase of new jobs. Companies have also shown a desire to build more industrial space for manufacturing U.S based goods due to tax incentives. Additionally, investors are likely to see high returns due to the positive economic environment. According to the Urban Land Institute, industrial returns will be around 11-12% which is nearly double other sectors.


Overall, these 4 trends have positively impacted the industrial real estate market. As 2019 continues, we will keep an eye on these, and new trends that may impact or change the industrial sector’s current status. If you’re considering the purchase or sale of industrial real estate, we’re always happy to chat. Drop your information on our contact page or call us at 800-895-9329.

Mathew Laborde, CCIM
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