Entering 2017, US industrial real estate demand was already nearing all-time highs, with asking rents reaching $5.25 per square foot. As we begin 2018, the phrase all-time high is all but commonplace for the sector.
Driven by expanding e-commerce footprints, which accounted for nearly 25 percent of US leasing activity in the third quarter of 2017, industrial asking rents have now reached $5.40 per square foot — another all-time high.
Warehouses and distribution centers have officially transformed from the “ugly duckling” to “beautiful swan” of commercial real estate. In fact, some experts predict that e-commerce sales could grow from 9 percent to almost 14 percent of total US sales in coming years. That, along with a strong global economy and increasing investor interest, indicates industrial demand will only increase in 2018.
Another key driver for the market will be a continued push to narrow the e-commerce gap with brick-and-mortar retail. This has led to logistics companies accelerating investment in “last-mile” warehouse spaces — helping to bring urban logistics and deliveries closer to the consumer. Therefore, location strategy is becoming more important and challenging than ever. Last-mile delivery’s significance will encourage tenants to incorporate more — and smaller — distribution centers in and near urban cores.
With more warehouse space comes more warehouse labor pressure. Thankfully, the Fourth Industrial Revolution is underway. With enhanced drone technologies for inventory management and automated offloading assistance, supply chain and logistics processes are innovating, and technological advancements are in stride with the rapidly growing market.
Also poised to benefit the sector in 2018? Trade, tax, and transportation infrastructure. With the new tax bill in its final stages and trade agreements continuing to be renegotiated, infrastructure legislation is right around the corner. Not only is infrastructure investment needed for the continued urbanization of US cities, but as upgrades are planned, more raw materials, and warehouses to store them, will be needed.
The US industrial real estate market shows no signs of slowing in 2018; you haven’t heard the last of all-time highs for now.