Industrial: Ugly Ducklings to Darlings of U.S. CRE

Warehouses and distribution centers were once the ugly ducklings of commercial real estate, compared to “trophy” office skyscrapers. Fast forward a decade, and this sector of the industry is emerging as beautiful swans for both commercial real estate investors and corporate occupiers.

“E-commerce activity is really driving the industrial sector’s success,” said Craig Meyer, President of JLL’s Industrial group, Americas. “It represents around 9% of total U.S. sales, and experts predict this could reach nearly 14% in the coming years. These figures, along with a strong global economy, indicate that demand for industrial space will only increase in 2018.”

Low vacancy rates and high demand for warehouse space are forming perfect conditions for the sector in 2018, according to JLL.

Top five growth drivers in the coming year include:

1) Trade, Tax and Transportation infrastructure. White House policy is leaning towards major infrastructure legislation in 2018. Trade agreements are being renegotiated and the tax bill was passed, opening the doors for infrastructure spending. As upgrades are planned, raw materials will be needed and warehouses to store them.

2) E-commerce continues to set records. Online shopping and consumer demand for rapid delivery is changing what, where and how many distribution centers are needed. E-commerce continues to be the fastest-growing sector, accounting for nearly 25% of Q3 2017 leasing demand.

3) Urban logistics move closer to the customer. E-commerce and related logistics companies are looking to accelerate investment in “last-mile” warehouse spaces in an effort to narrow the gap with brick and mortar stores. Tenants are expanding beyond a single mega-warehouse facility to multiple U.S. nodes, using logistics space to extend reach to connect with customers.

4) Continued investment in darlings of U.S. real estate. Investor interest is higher than ever, as institutional capital still views industrial property as a lucrative investment opportunity. Investment sales are up 34.7% in 2017, and there is a resurgence in industrial real estate portfolios.

5) Fourth Industrial Revolution well underway. Sophisticated automation is becoming a feature of today’s industrial facilities, which will reshape how warehouses are designed and used.