This commentary appeared in the print edition of the Jan. 6, 2020, Journal of Commerce Annual Review and Outlook.
The industrial real estate market is wrapping up another successful year of continued growth, reporting 38 straight quarters of expansion. Logistics companies have now also seen eight straight years of rent growth pressuring their operating margins.
It is certainly no secret that the wave has been fueled by dramatic investments in e-commerce infrastructure. It seems like nearly every consumer or business transaction is initiated and then fulfilled on the back end by a complex supply chain network of facilities — from import to regional to last-mile. Where does this all lead? Will the underlying real estate markets heat up or cool down? And, most important, how could shipper needs change?
We expect the e-commerce growth to continue to bolster demand across sectors and all geographies. Industrial real estate proximate to large population centers will continue to perform solidly. Areas of particular interest are in food and consumer packaged goods. A once static grocery supply chain has now been transformed as younger shoppers order food online. Massive investments are underway for new facilities in urban locations to fill those orders. Additionally, staples like cookies, candy, and packaged goods will continue to populate modern warehouses in response to same-day delivery requirements. A very fragmented cold storage third-party logistics sector has already seen consolidation, and similar investment in new sites in urban centers are underway.
Despite uncertainty with trade tariffs, we expect 2020 to mirror prior years with solid real estate market performance and growth, although perhaps at a more moderate pace. With customer demands continuing to fuel network configurations, specialty sectors like food will see continued transformation. As a reminder, e-commerce is in its early years as a lever in today’s supply chain, and it seems like it changes the conversation every year, especially with urban logistics. Stay tuned!