While the COVID-19 had a devastating impact on countless industries, industrial real estate has weathered the storm well since the pandemic began in 2020. Whereas office, retail, commercial real estate sectors have struggled, industrial real estate owners, investors, and other stakeholders have found themselves well-positioned to thrive. This article will explore some trends that will help industrial properties remain a hot commodity this year.
Industrial Prepares for Another Banner Year
The driving forces behind industrial real estate demand will continue in 2022 and beyond. As a result, industry stakeholders should be ready for the following issues that will define the year.
E-commerce Will Keep Booming
While the dramatic shift to e-commerce took the retail sector by surprise at the beginning of the pandemic, growth in online sales has become the new normal in 2022. By this point, statistics show that:
So while overall growth in online sales may drop from just above 16% year-over-year in 2021 to around 14% year-over-year in 2022, online sellers will still require more warehouses to keep pace. As a result, retailers of all sizes will keep looking to expand fulfillment footprints to accommodate increased sales. That demand will keep demand high and vacancies low in 2022.
- 69% of American consumers have shopped online
- 25% of consumers buy something online at least once a month
- 91% of the U.S. population will buy something online by 2023
Supply Chain Restructuring Efforts Will Get Underway
Over the past two years, the disruptions caused by the pandemic have resulted in an increased focus on supply chain resiliency. Some of the methodologies used to build a resilient supply chain operation have a direct impact on industrial real estate, such as:
It takes time to shut down an overseas production operation and bring it home. It also takes time to split a centralized distribution operation into multiple smaller facilities. As a result, supply chain resiliency plans implemented in 2020 and 2021 will begin coming to fruition in 2022.
- Reshoring. Years of trade wars followed by a pandemic have convinced U.S. businesses to move production assets to American soil. Establishing a U.S.-based manufacturing operation shortens shipping distances and gives companies greater control over their product lifecycle.
- Regionalizing. When disease, extreme weather, or other extenuating circumstances shut down a warehouse or factory, businesses often lose millions of dollars as they wait to bring operations back online. By dividing distribution and production assets among multiple geographic areas, companies can shift responsibility for fulfilling orders or fabricating goods to unaffected regions when something goes wrong at a specific facility.
3PLs Will Lead the Way
Dealing with high demand and low vacancy in industrial real estate has become such a hassle that many businesses outsource the responsibility to a specialist. Subsequently, third-party logistics (3PL) providers have come out as clear winners in the industrial capacity crunch for their ability to provide hard-to-find fulfillment space in tight markets.
Shippers have increasingly turned to their 3PLs for temperature-controlled facilities, fulfillment centers, distribution centers, or even simple storage. A 3PL with an expansive real estate portfolio will stand out from the pack in 2022 as demand for industrial space continues to outpace supply. Savvy 3PLs will continue to increase their competitive advantage in 2022 by buying and leasing industrial space in key markets.
About Phoenix Investors
Founded by Frank P. Crivello in 1994, Phoenix Investors and its affiliates (collectively “Phoenix”) are a leader in the acquisition, development, renovation, and repositioning of industrial facilities throughout the United States. Utilizing a disciplined investment approach and successful partnerships with institutional capital sources, corporations and public stakeholders, Phoenix has developed a proven track record of generating superior risk adjusted returns, while providing cost-efficient lease rates for its growing portfolio of national tenants. Its efforts inspire and drive the transformation and reinvigoration of the economic engines in the communities it serves. Phoenix continues to be defined by thoughtful relationships, sophisticated investment tools, cost efficient solutions, and a reputation for success.