This year, industrial real estate made headlines for the commercial real estate sector. With warehouses popping up throughout the country and distributors still searching for more space, it seems safe to say that industrial real estate will still be at the sector’s forefront in 2018.
Investors celebrated record-breaking low vacancy rates signaling the tipped scales when it comes to supply and demand within the industry. According to Bisnow, the national vacancy rate dropped 5.3% in the last year, a good sign for property managers and investors considering it’s the lowest in three decades. As online distributors continue to grow so will the demand for industrial real estate. This positive trend bodes well for 2018.
Net Occupancy Gains
Because of the high demand so has the net occupancy rates. As of April, net occupancy gains were up for the 28th consecutive quarter, which according to Cushman and Wakefield makes it one of the longest expansions ever. As specified in Forbes, 1.3B SF net absorption has been added since 2010.
While industrial real estate boomed this year, there are a few factors that make this type of property ‘in demand.’ As Ian Formigle explains, “Chief among those factors are location, proximity to customers and workers, transportation, access to land and financial incentives that can offset building costs.” As e-commerce works toward faster delivery times and customer service, industrial real estate near consumer hubs acts as incentive for tenants looking for last mile distribution opportunities.
E-commerce’s Tall Order
E-commerce currently acts as industrial real estates’ number one tenant. As a result, developers are tailoring their real estate to e-commerce’s needs. What is the most significant aspect they look for in a space though? Height. Taller warehouses mean more storage, more inventory, and more happy customers. According to Bisnow “In the 1960s, warehouses averaged roughly 24 feet in height, but that average has jumped to 34 feet as of last year.” The added height maximizes the value for corporate clients and space for investors.
Trade Policy Changes
Trump’s trade policy changes serve as the one foreboding factor in the industry. As explained in Forbes, “President Donald Trump’s “America First” mantra involves reworking trade deals the new administration deems detrimental to the country by boosting exports and reducing imports.” While it’s not directly impacting industrial real estate investors, the new practice will affect their clientele. The cut to imports will leave many commerce companies evaluating their cost and the impact it will have on how they service their customers.