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Institutional Real Estate, Inc. | By Denise Moose

The Ever-Changing Industrial Sector

A look at the latest trends in Industrial Real Estate

Featuring Brian Malliet, CEO and Founder, BKM Capital Partners

An industrial building
Pecos Commerce Center | Mesa, AZ

The logistics industry is changing and transforming at a rapid rate, and the pace of change is only expected to accelerate in the coming years. To stay ahead of these changes, investors and managers need to be aware of logistics trends that are shaping logistics in the year ahead.


One of those trends to watch is a possible economic slowdown affecting the sector. A recent report from JLL, “Industrial Outlook: Industrial and logistics sectors feel the squeeze amid headwinds, Q3 2023,” states industrial fundamentals showed increasing signs of slowing in the third quarter as the turbulent macroeconomic environment persists. And, although there is still demand from industrial tenants, many users either have pressed pause on executing new deals or are taking much longer to finalize deals as they evaluate all possible outcomes. Furthermore, real estate decisions are being reviewed by more people within the company, going as far up as the C-suite in some cases, adding to the prolonged timeline. Those with upcoming renewals in markets that have seen tremendous rental rate growth are weighing the options of moving locations to a more cost-effective market.


Rapid changes and potential slowdowns are yet more issues for developers facing challenges and growing pains.


“One of the biggest challenges facing industrial developers today is the political and social pushback for building big-box warehouses near residential areas,” says Brian Malliet, CEO and founder at BKM Capital Partners. “We’ve seen this happening in several markets across the country. For instance, when someone buys an office campus and rezones it for warehouse/distribution centers, we see a lot of objections. Many complain about the increased commercial traffic, or the rezoning would be detrimental to the local economy since it would bring down employment levels.”


Malliet continues to add there is already a distinct lack of space in most markets, and the unavailability of debt and high development costs have cut down speculative development by half. While upcoming industrial deliveries will open a brief tenant-favorable window this year and next, the subsequent slowdown in development will once again squeeze supply and demand because ecommerce will only continue to grow. The supply-demand imbalance is going to be exacerbated again in late 2024.


“Additionally, demand has normalized, and ecommerce sales growth has returned to its pre-pandemic norms, but the lasting impact of supply-chain disruptions has increased the desire for more control,” says Malliet. “This will translate to a need for more W&D space, yet the type of space won’t be one-size-fits-all or concentrated in just a few markets.”


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