The rapid changes in retail trade and industry dynamics we have experienced have had a profound impact upon the landscape of supply chains and the industrial real estate sector that supports them. Most immediately, the changes have led to a massive boom and continued growth cycle that far exceed any expectations or historical precedent.
The dynamic and widespread impact of e-commerce retail and trade has had the singular most pervasive effect on industrial real estate. In fact, e-commerce-related warehouse demand accounts for more than half of all demand across the spectrum of potential industries. E-commerce has driven wholesale change in the location, size, inventory mix, and execution of facility planning. Investment capital has had such a penchant for this asset type that speculative construction thrives in almost every marketplace and has now leveled the demand after a five-year imbalance. Nevertheless, the tremendous demand surge now manifests itself in the form of rental pricing pressure and very tangible labor constraints at a site level.
The industrial real estate community has been the true beneficiary of the e-commerce effect reported above. Areas of risk include undisciplined capital entering the market, which leads to overbuilding. Bear in mind that while e-commerce only represents 11 percent of retail sales, the sector is in a state of massive reconstitution. We believe this creates opportunities in supply chains that focus on efficiency, customer service, and agility in a very dynamic period. The real estate community stands to benefit, provided it remains nimble, disciplined, and focused on those same business drivers.
Barring any disruptive geo-political events, 2018 should be another year of growth across all markets, especially those most proximate to major population clusters.