How Much More Can E-Commerce Sales Drive Industrial Demand

​Many people are looking at the unprecedented rise in industrial property demand, sales prices and rental rates over the past 10.5 years and they beginning to wonder when we are going to experience our ‘market correction’ that we have grown accustomed to seeing every 7-9 years (going back +/-100 years).  Without getting into why we seem to have these corrections somewhat predictably, and putting aside the always looming threat of unforeseen natural or geopolitical events that can change dynamics in a short time frame, what are the current trends and market fundamentals telling us about industrial property values and demand moving forward?  Well, quite simply, the E-Commerce revolution and technologically driven supply chains are causing more and more of the formerly in-person retail purchase transactions to be secured and completed ‘online,’ and subsequently shipped directly to consumers. As a result, the inventory that formerly occupied large amounts of ‘commercial retail space’ is now being absorbed by industrial properties, and most predict this trend to continue for the next several years, at least.  

​As an example, by most accounts, online sales in 2018 were approximately 10% of all retail sales in the United States (US Census Bureau), and in 2020 that number increased to approximately 15% to 20%, depending on reports.  With further consumer comfort and convenience of the online process, it is easy to see that number increase to 25% or 30% over the next five years.  This trend will put more pressure on the market for quality industrial warehouse space, and with limited availability for construction projects near major population centers we can see how this demand will continue to put upward pressure on those industrial prices and rents.  When you couple this with inflationary pressures (see last months article – create link here), it is hard to see any significant nominal price reductions happening soon. 
 
We are seeing this firsthand as we work with developers, landlords and the very occupants of this space (those who are running their business out of these properties).  Developers are aggressively seeking to acquire land at historically high prices to develop buildings that would be ready for occupancy in 18-24 months, projecting future significant rent and sales price growth over that time.  Conversely, many of these occupants have seen their sales grow significantly because of their online platform, thus allowing them to absorb the higher rent and sales prices, although somewhat reluctantly at times. Even contractors, who don’t have much of an online sales presence, are willing to absorb the higher prices because they are so busy keeping up with new development and renovation projects this demand has caused. 
 
Therefore, talk with us today and we can explore your unique situation, and help develop a strategy that is ideal and successful for you.