During a tumultuous pandemic, surrounded by global uncertainty, the industrial real estate sector showed great resilience and momentum in 2020. The seismic disruptions of COVID-19 and supply chain uncertainty brought greater attention and more capital into the business of manufacturing and shipping goods to an increasingly demanding end consumer.
E-commerce is the primary demand driver for industrial real estate. Because people are buying more online and expect immediate fulfillment, distribution centers are opening throughout the country to get products to consumers quicker while lowering transportation costs. In the second quarter, e-commerce soared a record 44.4 percent. According to the US Census Bureau, more than $1 of every $5 spent came from online orders from April through June. We project this to accelerate in the coming months, pointing to online sales increasing by 40 percent during the holiday season, double 2019’s levels.
While the sourcing of products is not tied to e-commerce directly, procurement is diversifying to ensure the flow of goods into the US is not disrupted. Inventory strategies have transformed from just-in time to healthier safety stock buffering. A “China-plus-one” strategy will be the supply source strategy of choice, coupling a dominant China with a secondary sourcing option either in Asia or onshored to North America (Mexico or the United States). This will continue to balance out import flows across the United States through multiple gateways.
Finally, inventory control will be a primary demand driver for industrial real estate in 2021. Many retailers will look to the suppliers, whether it be wholesalers or outsourced 3PLs, to carry this inventory, and these two occupier types will be the most active in 2021. In short, the sector looks to stay agile and experience healthy expansion in 2021 and beyond.