Aerial view of warehouse with trucks. Industrial background. Logistics from above.

Predicting Industrial Growth Trends for 2018

According to NAIOP’s Industrial Space Demand Forecast for Q1 2018, industrial demand will remain strong over the next 12 months, as sustained growth translates into increasing demand for industrial properties as users see more justification for investment and expansion of facilities.

A recent Advantage Series webinar, “What’s Next for the Dynamic Industrial Market?” provided insights and additional context for the Forecast with the help of Mark Eppli, Ph.D., professor of finance and Bell Chair in Real Estate at Marquette University, and Josh Harris, Ph.D., academic director and clinical assistant professor of real estate at New York University.

We followed up with Drs. Eppli and Harris to get their feedback on attendee questions that were submitted at the end of the webinar.

Q: What size markets (prime, secondary or tertiary) will outperform/underperform going forward with such a tight labor market? What can varying markets do to stay competitive, especially in occurrences where room for wage growth is limited?

Harris: Overall, there is probably more room for growth in secondary and tertiary markets as they generally have fewer barriers to growth, infrastructure issues, etc. The relative pricing advantage (not just real estate prices, but also cost of living wages, for example) make it easier to establish new operations in such markets than many of the larger ones. As for staying competitive, the best answer is innovation, automation and technology. The markets that lead in attracting technology and knowledge workers/firms will lead growth overall including in industrial markets.

Eppli: I believe that it is less about the size of the market and more about the location within the market. Excellent “last mile” locations will outperform.

Q: What do you think about multilevel warehouses in the U.S. market?

Harris: I can see this being a feasible option in a few land-constrained markets like New York City, but overall, the U.S. market generally has enough land and roads that it is not necessary or feasible. For land-constrained markets in other parts of the world, like Hong Kong, it is necessary, but I do not see that being the case in the U.S. for some time.

Eppli: I agree with Josh. Prologis’ three-story distribution facility in Seattle has dock-high loading on two floors, and a logistics user on the top floor. Pricing “last mile” distribution on a per-square-foot basis often justifies the challenge of a multilevel facility in infill markets.

Q: What are your top five markets for industrial demand?

Harris: This may seem like dodging the question, but I would not bother to rank the markets. Instead, I think the best markets will be those with the highest rates of housing, job and population growth; I’m sure you can find many of those across the nation right now (the South including Texas is probably the strongest region, but far from the only area with growth). International trade-based markets (like Los Angeles, New York City and Miami) could stand to benefit from broad-based global growth, but are also most at risk of any “trade war” effects. To sum, industrial looks pretty good in most markets, but the risks factors each face can vary greatly.

The Advantage Series is an exclusive member benefit, delivering expert insights into the latest research to help you make informed business decisions. This webinar was presented on April 17, 2018. NAIOP members can view the full archived webinar and presentation online. View and register for upcoming Advantage Series webinars online.

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