One of the biggest factors altering industrial real estate has been the prevalence of e-commerce, especially during the coronavirus pandemic, according to James Breeze, senior director and global head of industrial and logistics research for CBRE.
In the 2020 Virtual BOMA International Conference & Expo session titled “U.S. Industrial Post-COVID Review and Outlook,” Breeze explored the ways in which the coronavirus pandemic has affected the outlook of industrial real estate.
With the closure of many non-essential businesses and a large portion of the workforce working from home, e-commerce has outperformed its projected growth—a growth that CBRE research predicted even before the pandemic began.
“We predicted that e-commerce sales as a percentage of retail sales would reach 39% by 2030,” Breeze said.
“At the end of 2019, e-commerce sales were at 15%, but at the end of April 2020, that number skyrocketed to 27%, according to Digital Ecommerce 360.
We do expect that number to dissipate as many states will open up and have been opening up. But we do expect e-commerce to finish 2020 at about 19% and continue that rate of growth over the next 10 years.”
What does that growth mean for industrial real estate? The demand of retailers to meet online fulfillment will translate to more square footage needed for warehouses and other industrial spaces.
Breeze said some retailers, like Target, are pushing for more online sales, and therefore will look for more locations for fulfillment.
Industrial real estate construction is still happening, albeit at a slower pace, especially in the suburbs where site inspectors might not be working.
Breeze said the Inland Empire is leading the pack in the West, with 29 million square feet under construction.
“It goes to show how bullish developers are in the West region,” he said.
When it comes to industrial real estate design, the use of technology will prove to be a game-changer.
Reliable and (in some cases) renewable power sources will be a key factor in building selection throughout the country, Breeze said.
It will be needed for higher amounts of automated machinery and robotics in these spaces going forward.
HVAC will also be top of mind, not just for employee comfort, but to keep the robotics and machinery at a working operating temperature.
Overall, Breeze said the outlook for industrial real estate amid the pandemic is strong, especially because of e-commerce growth.
According to CBRE, every $1 billion of e-commerce sales results in an additional 1.25 million square feet of industrial demand.
“Using those numbers, over the next 10 years we’re going to need over 2 billion square feet of new construction to make up for extra e-commerce demand,” Breeze said.
“That might sound like a crazy number…But the last five years there’s been 960 million square feet of new construction.
Frankly, it’s pretty much in line with what we’ve already seen in the last five years…And this isn’t a sign of overbuilding…The vacancy rate [for Q1 of 2020] was only 4.5%.”
Breeze said CBRE had just finalized its numbers for Q2 of 2020, and the vacancy rate increased only minimally to 4.7%.