Skip navigation
warehouse graph
warehouse coronavirus gmast3r/iStock/Getty Images

No Harm Done

The industrial sector was one of the star performers throughout the pandemic as social distancing measures largely boosted demand.

A year marked by periods of uncertainty for most property sectors ended up being something quite different for industrial real estate.

The demand for home delivery of more types of goods and services provided extra fuel for fires that were already burning even before COVID-19. It also generated demand for once niche parts of the market, such as cold storage. The strong and consistent performance also caught the eyes of new investors looking for a safe haven. And as social distancing measures have eased, the demands for industrial real estate have not waned. All of that adds up to a lot of runway to go for what’s already been a long run of expansion for the sector. And overwhelming majority of respondents to WMRE’s seventh annual industrial market remain bullish on the prospects for occupancy and rent growth and other fundamentals.

Predictions on how long the expansion phase will last moved very little compared to the 2020 survey, which polled industry participants in February just before the massive effects from the COVID-19 pandemic set in. In all, 41 percent believe the sector’s expansion phase could run another 13 to 24 months, while 18 percent think it could be longer than two years. In addition, 22 percent predict that the cycle could continue for 7 to 12 months and 15 percent said six months or less. Those who feel the expansion has already ended represent a fraction at 3.65 percent—far fewer compared to the 7 percent who held that view in 2020 and 12 percent in 2019.

Among the optimists who believe the expansion could continue for more than two years, the two main reasons commonly cited are growth in the economy and e-commerce. “I feel the economy and markets are opening back up and an expansion phase with infrastructure spending will increase economic growth for the next several years,” wrote one respondent. Those who have a shorter-term view of the expansion window of one year or less generally believe that industrial expansion could be derailed by higher taxes under the Biden Administration and a drop in consumer spending once stimulus money runs out.

“Government actions will have negative effects in the long term, ultimately raising interest rates, spreads and creating headwinds to physical development of plant through more stringent regulations and increased tax burdens on companies and consumers,” wrote one respondent.

E-commerce has been a key part of the industrial growth story for the past several years, and more consumers shifted to online shopping during the pandemic. According to the U.S. Census Bureau, e-commerce represented 14.0 percent of total retail sales in the fourth quarter 2020, which was up from 11.3 percent in fourth quarter of 2019. Although forecasts on e-commerce growth vary widely, some predict that the share of global sales could grow to 21 percent by 2025.

“There is a fairly large runway on e-commerce in our space, and you combine that with the GDP growth that we have seen over the last 90 to 120 days coming out of the pandemic, and it has really been driving demand for space,” says David Fazekas, a senior managing director and chief investment officer of industrial at Black Creek Group, a real estate investment management firm. GDP grew at an annualized rate of 6.4 percent in first quarter as compared to 2.4 percent in fourth quarter 2019. Tenant demand also is very broad across the spectrum of different types of industrial space, he adds.

Survey methodology: The WMRE research report on the industrial real estate sector was completed via online surveys distributed to readers of Wealth Management Real Estate in April 2021. The survey yielded 200 responses. Recipients were asked what regions they operated in (and were allowed to select multiple regions). Overall, 47 percent said they operated in the East, followed by the West (38 percent), South (36 percent) and Midwest (34 percent). Forty five percent are private investors and 26 percent financial intermediaries represent with the balance a mix of developers, REITs, lenders, service providers and occupiers. About half of respondents (51 percent) hold the titles of owner, partner, president, chairman, CEO or CFO.