Industrial real estate is a bright spot in the commercial real estate (CRE) industry. According to Ali Ata, it is one of the few asset classes in CRE uniquely positioned to thrive despite the pandemic’s economic downturn.
E-commerce boom powers industrial real estate growth
In April, retailers across the country began to shut down their stores to help mitigate the spread of COVID-19. With consumers either under lockdown orders or merely preferring to stay at home, retailers shifted their focus to e-commerce to survive.
According to Adobe’s Digital Economy Index, the pandemic drove approximately $434.5 billion in online spending in the first seven months of 2020. While spending has decreased slightly as more states have opened up, e-commerce is not going away anytime soon.
This surge in e-commerce spending has retailers scrambling to keep up, according to Ali Ata. It also increased the demand for industrial spaces that support e-commerce operations, such as warehouses, fulfillment centers, and manufacturing facilities. A CBRE study indicates that every $1 billion growth in e-commerce sales requires an additional 1.25 million sq. ft. of warehouse and logistics space to support it.
Old spaces used in new ways
E-commerce’s popularity has forced companies to rethink supply chains. Businesses not only have to bolster their inventories but also hold them in places close to their customers to ensure timely delivery. Distribution centers near parcel hubs will also help businesses prevent disruptions in the transport of goods. Also, the popularity of online grocery orders is likely to increase the need for cold storage space.
As observed by Ali Ata, industrial real estate owners benefit from the increase in demand for warehouses, supply chain hubs, and distribution spaces. Developers, property owners, and property managers have had to adapt to serve their tenants in new ways. Some CRE owners are adapting to this evolution in the real estate market by converting empty stores and offices to warehouses or other spaces that support e-commerce.
Technology also plays a crucial role in ensuring the suitability of industrial spaces for manufacturing. Automation and robotics have allowed factories to produce goods at a lower cost, reducing the competitive advantage of factories in Asia. In time, producing goods at domestic locations will be even more cost-efficient and will further simplify logistics.
Ali Ata believes that the demand for industrial real estate will remain strong even after the pandemic. It is up to real estate professionals to create and implement strategies that will allow them to meet it.