I’m glad to see 2011 behind us and am looking forward to a steady but slow improvement in all logistics sectors this year. There are a few bright spots in store for industrial real estate, especially in the big-box warehouse and cross-dock buildings that are directly connected to global logistics.
Developers that survived the 2008-2010 economic downturn are stronger than ever. The money that backs them has been sitting on the sidelines for more than three years; now there is pent-up demand to put that money to use. There are very few asset classes that can deliver a safe return of more than 2.8 percent, which leads us to the current phenomenon of “blue-chip industrial real estate” as a safe asset class to own. There just isn’t any other class that has safety and return (5 to 7 percent) in the mix.
At the same time, there are some good market conditions that will move the industry forward. There is little building inventory in the U.S. exceeding 300,000 square feet and even less over 1 million. The large absorptions in the past three years have been above the 600,000-square-foot level. It seems as though shippers and beneficial cargo owners have absorbed all large-sized warehouse space, leaving the market void in the sweet spot of demand.
E-commerce also is driving the next growth sector in industrial real estate with big-box sites for e-commerce and order fulfillment expected to grow 15 to 20 percent for the next 10 years. Retailers now expect e-commerce to account for more than 40 percent of all retail sales by 2025, up from the current single-digit market share. E-commerce will be the leading industry sector that will provide investment opportunities for industrial development into the next decade.