Emerging Logistics Trends in Commercial Real Estate
In a recent keynote at the CORFAC International Virtual Fall Summit, Curtis Spencer, president of IMS Worldwide, discussed the rapidly evolving trends that are affecting all sectors of commercial real estate, including supply chain shifts, increasing demand for cold storage, reshoring and more.
“New supply of industrial space outpaced demand in 2019, but because 2018 was a record year for industrial absorption, absorption numbers for 2019 appeared low, as much-needed industrial supply finally caught up to tenant demand,” he pointed out.
Industrial real estate operators expect the redistribution of consumer supply chains due to the coronavirus pandemic to drive a new surge in warehousing demand. A push for supply chain resilience will lead to a projected additional 750 million square feet of industrial space in the U.S. alone, as companies look to foster safety stock of inventory.
Reshoring
The coronavirus pandemic has left hundreds of U.S. manufacturers examining how to bring at least some of their operations and real estate footprints home. Nearly two-thirds of North American manufacturers say there are likely to bring production and sourcing back to the continent.
“People make supply chain decisions based on cost. Once you start adding more tariffs, you’re resetting your pro forma for supply chain costs, and maybe the North American continent becomes more cost effective,” according to Spencer.
Spencer named existing manufacturing hubs like Pennsylvania, Wisconsin and Texas as the most likely reshoring destinations.
Cold Storage
Demand could also be particularly strong for temperature-controlled warehouse space to store food if consumers keep ordering groceries online – a market that has been booming as more people stay at home under social-distancing guidelines. “I’m working on three deals for spec development of cold storage space,” Spencer said. “People are building spec at $200/foot!”
With cold storage now representing a $98.1 billion market globally, and compound annual growth of 12.1% projected through 2025, it’s safe to say this specialized subset of industrial has made its way into the spotlight. “It’s also valid to ask whether a new real estate asset class is forming,” said Spencer.
The Next Normal
In closing, Spencer predicted e-commerce and safety stock will keep industrial development strong. “Just-in-time delivery only works inside North America – COVID proved that point,” he said. Looking ahead to the holiday season, total package volume is expected to increase up to 70% from last year, and mega-retailer Amazon reported that it will increase its fulfillment network square footage by 50% by the end of the year to keep up with the demand brought on by the coronavirus pandemic. Overall U.S. e-commerce sales are expected to increase 18% to reach $710 billion in 2020.
