3 Forces Shaping Industrial Real Estate Investments

Force 1: E-Commerce Explosion and Warehousing Demand

The E-Commerce Revolution and its Ripple Effect

The COVID-19 pandemic changed consumer behavior. According to the U.S. Census Bureau most recent ARTS release (Annual Retail Trade Survey), e-commerce sales increased by $244.2 billion (43%) in 2020—the first year of the pandemic. The exponential growth of e-commerce both pre and post-pandemic prompted an unprecedented surge in online retail transactions. As consumers increasingly embrace the convenience of online shopping, the demand for efficient warehousing and distribution centers has skyrocketed. This surge directly impacts industrial real estate, with distribution facilities evolving into essential components of supply chain management across the nation.

Implications for Real Estate Investors

Investors exploring opportunities within the industrial sector must recognize the prime opportunity presented by the surge in e-commerce. As you review investment opportunities, be sure to ask questions related to the property’s proximity to key markets and existing transportation infrastructure. Properties positioned to meet this growing demand can provide a stable income stream and capital appreciation potential. 

Force 2: Technological Advancements and Reshoring

Industry 4.0: Pioneering the Future of Manufacturing in North America

The integration of advanced technologies such as robotics, artificial intelligence (AI), and automation is shifting the way manufacturing is done around the globe. Jobs that were once completed overseas with cheap labor can now be completed closer to home by pairing automation with a highly-trained workforce who oversee the mechanisms. Manufacturing and logistics operations are increasingly reliant on industrial spaces that allow producers to optimize efficiency, reduce costs, and leverage robotics.

The adoption of technology coincides with the trend of reshoring and nearshoring production. This is where businesses who once produced goods in other countries relocate their facilities to North America. According to the Kearney Reshoring Index, “79% of executives with manufacturing capacity in China have already moved part of their manufacturing capacity to the U.S. or plan to in the next 3 years.” Reshoring affords companies greater control and flexibility over their supply chains, reducing their risk of future disruptions.

Considerations for Investors

Investors considering opportunities in industrial real estate should keep these two major developments in mind. First, if the facility is set up for advanced technology, consider what kinds of tenants might occupy that space and if it is properly outfitted to meet their needs. Second, consider how a warehouse or other industrial building might be well-situated to meet the demand for additional space due to reshoring trends.

Force 3: Evolving Supply Chain Dynamics and Last-Mile Realities

Redefining Last-Mile Delivery

The race to fulfill customer orders within the shortest possible time has given rise to the “last-mile” delivery phenomenon. Almost all of us have become accustomed to next-day or even same-day delivery! To meet this demand, urban logistics centers must be strategically located in close proximity to major population centers in every region of the U.S. These centers facilitate swift and efficient delivery, underscoring the significance of well-located last-mile distribution facilities.

How Investors Capitalize on Last-Mile Logistics

Investors eyeing real estate syndications in the industrial sector should acknowledge the pivotal role of last-mile logistics in shaping supply chain strategies. Investing in well-positioned urban distribution centers can translate into a competitive advantage. Key factors to consider include the property’s accessibility to urban hubs, its potential for customization to suit diverse tenant needs, and the sponsor’s insights into the intricacies of last-mile logistics.

Conclusion 

Navigating the Industrial Real Estate Landscape

As the industrial real estate landscape evolves under the influence of e-commerce, technological innovations, and shifting supply chain paradigms, savvy investors must remain attuned to these transformative forces. As you review syndications, evaluate if the property and business plan align with the dynamics of e-commerce warehousing, reshoring,  and last-mile logistics to unlock opportunities for consistent returns and long-term growth. By comprehending these three forces and their implications, you can confidently navigate the industrial real estate terrain and position yourself for success!