Today’s industrial real estate market is experiencing slower demand growth, rising competition and higher cost of capital. Industrial business owners are adjusting to new business models and upgrading their facilities to meet new customer and environmental demands. Industrial real estate trends show an increase in development and investment for the upcoming year, with an explosion in ecommerce sales and demand.
Surge in Ecommerce Activity
The industrial market outlook in 2020 shows an explosion in ecommerce activity. Ecommerce spending has risen steadily each year since 2000. Online’s share of total retail shares hit 16% in 2019, up from 14.4% in 2018 and 13.2% in 2017, according to the U.S. Department of Commerce.
Many retailers are adjusting their business strategies to accommodate omnichannel activity. In order to keep up with the demand for product shipments, many companies are modifying their physical facilities or relocating to bigger properties.
Increased Warehouse Demand
Manufacturing and retail sectors with high consumption drive demand for industrial real estate. These businesses require a large amount of production and distribution space. Ecommerce companies experiencing substantial sales growth demand even more industrial warehouse space for inventory and product return.
Growing Demand for In-House Logistics
Today’s consumers demand same-day and next-day delivery. Ecommerce companies are being forced to heighten their delivery services to compete with major retailers like Amazon and Walmart. These companies are investing in larger warehouses for in-house logistics and distribution purposes.
Industrial real estate buyers are looking for smarter, technologically advanced facilities. Tenants want to invest in smart technology and automation systems that speed up production processes and lower labor costs. Smart facilities also offer plenty of advantages for businesses, including integrated sensors for building operations, cloud-based analytics, air quality control, temperature monitoring and more.
Improved Warehouse Efficiency
Industrial real estate owners are focusing on improving efficiency to lower maintenance costs and better their green efforts. Business owners are looking for real estate properties designed with efficiency in mind, from storage to energy sourcing. Industrial tenants require advanced Internet connection and connectivity with energy grids for reliable power and the ability to invest in renewable energy sources.
Industrial Development Co-Existing with Retail Uses
Industrial real estate trends indicate that we may see an increase in industrial development co-existing with retail uses in the next year. Many companies are adding industrial space onto their retail centers or converting their brick-and-mortar stores into industrial spaces to accommodate ecommerce growth.