Commercial Investment Real Estate September/October 2019 | Page 27

I
ndustrial real estate is no longer simply the steady work-
horse operating quietly behind the scenes. The market
sector has jumped to the forefront as the property everyone
is talking about.
That attention is well deserved, with secular shifts that are
spurring steady demand for space and overall performance that
is tough to ignore. According to the NCREIF Property Index,
industrial is expected to generate returns of 10.3 percent this
year, well ahead of the 6 percent returns expected in both office
and apartments and 2.9 percent for retail.
The market has been riding a significant tailwind from
e-commerce, and that breeze is only expected to grow stron-
ger. “Logistics real estate remains strong and, in most markets,
customers are waiting for new supply to come online due to
the limited availability of standing inventory in nearly all U.S.
cities,” says Kim Snyder, president of the west region at Pro-
logis. Industrial also is seeing demand coming from sources
across the board — third-party logistics and logistics firms,
manufacturers, light assembly, and even cannabis growers.
According to the Urban Land Institute’s Real Estate Eco-
nomic Forecast for Spring 2019, the industrial/warehouse
vacancy rate is hovering around 7 percent, well below its
20-year average of 10.2 percent. CBRE puts warehouse vacan-
cies even lower, at 4.4 percent. Industry sources agree that
demand has been fueling a surge in warehouse development in
recent years. CBRE estimates 255 million square feet of ware-
house space was under construction at midyear, of which 70
percent was speculative. The firm also noted that since 2015,
warehouse demand has outpaced completions by 169 million sf,
with rents increasing 19.2 percent over that period.
Against that backdrop, developers and investors are trying to
get a read on changing occupier needs related to shifting supply
chains, last-mile delivery, and more modern space.
Growth in e-commerce is transforming warehouse, distribu-
tion, and fulfillment space, along with the way companies view
supply chains. That shift is only going to increase as e-com-
merce continues to grow and expand into other sectors such
as grocery, furniture, vehicles, and pharmaceuticals. “You are
going to need more places to store these goods and be able
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E-Commerce’s Effect on Supply Chains
September | October 2019
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