Underpinned by 34 consecutive quarters of historic growth in the US industrial real estate sector, the outlook for 2019 remains optimistic, yet wondering what challenges may surface.
Massive, million-square-foot facilities now proliferate across all geographies and house every imaginable item with immediate access to population clusters. By their nature, they have disrupted the traditional model of supply chain as consumer expectations around lead times continue to be compressed. The novelty of “last-mile” has been normalized such that property developers are intentionally building close-in urban, multistory warehouses to meet those tight delivery windows. Also, with more than 250 million square feet of warehouse demand expected for 2019, the record low vacancies experienced look to continue for the upcoming year as they outstrip the amount of construction currently forecast.
On average, US warehouse operations are running at greater than 85% capacity, so the growth outlook looks very favorable.
We expect two areas to be top of mind in 2019: Tariffs and automation. While the tariffs on imported steel, food, and other products might be temporary or even seen as just “optics,” the supply chain for importers will be forced to be nimble and responsive as it assesses the best contingencies for sourcing and domestic distribution. Automation in the warehouse has now transitioned from being incidental to being instrumental for two key reasons.
First, at 3 to 4 percent unemployment levels, companies are now mandated to invest in greater automation to keep operations running effectively. Second, given the SKU and order profile complexity, automation will be critical to meet the service level promises made by their colleagues at the point of sale.
In summary, we expect continued growth in 2019. Demand driven by the explosive growth in e-commerce will be consistent yet tempered by trade and tariff conditions. The sleeper for 2019 may also be what takes place in the housing industry, which was beginning to lose some momentum at year-end 2018.