3 Trends Modernizing Industrial Real Estate
The success of a property ebbs and flows based on trends shaping the market. This is a truth commercial real estate professionals see across all asset classes, but it is perhaps most prevalent in industrial. Once a storage and supply center for nearby brick-and-mortar, warehouses have grown in popularity as demand increases from the Amazons of the world and the consumers they serve.
Sales of industrial properties grew 3% between 2016 and 2017, and investment sales increased 15%, according to an NREI report. Industrial real estate investment increased 23.2%, and sales totaled $59.2B. As the asset class grows in popularity and continues to modernize, real estate professionals are keeping their eyes on the prize. Here are three industrial trends impacting the market.
1. Distribution And Logistics
Before the birth of e-commerce, companies looking to lease industrial space searched for well-located properties at the lowest possible rent. While rent remains a critical factor in making a leasing decision, a shrinking window for last-mile delivery times has forced some businesses to choose proximity to customers over price.
“E-commerce has definitely changed the way that our industrial clients are using their space,” Dallas-based Bradford Commercial Real Estate Services/CORFAC International Executive Vice President Susan Singer said. “While rent is definitely one of the top five considerations, we’re now also talking about access to labor, the cost of transportation and logistics and the ability to have expanded trailer parking and container storage.”
The rise of consumer consumption patterns, specifically same-day and next-day delivery, has prompted companies to focus on improving their last-mile delivery strategies. This trend has been adopted most heavily in the area of consumer goods, as people order more products online for home delivery or in-store pickup.
With these logistics in mind, developers are reaping the benefits by repurposing defunct department stores into fulfillment centers and opening multistory warehouses to meet e-commerce demand.
2. Fast And Fresh
E-commerce players are seeing the need for speed in the restaurant and grocery sectors, as people require quick and easy delivery of fresh foods. Meal-kit companies like Blue Apron and Hello Fresh are growing in popularity, and their success is based on fast delivery of fresh produce. As the focus on logistics intensifies, industrial brokers are working with clients to find facilities near their customer base to improve the speed of delivery. Hello Fresh, for instance, operates in the New York City market to be closer to its customer base. Amazon has acquired cold storage fulfillment centers near Dallas, Chicago and New York City with this goal in mind.
3. Heightened Attention To Broker-Client Relationships
Brokers face several challenges as they aim to help industrial clients create and execute distribution strategies, Singer said. To stay ahead of the curve, brokers are educating themselves on e-commerce and other retail trends.
The decision to lease a space depends on the company and what it is looking for. The ideal location, square footage and proximity to highways and ports can vary from client to client. When it comes to industrial real estate, brokers have a greater responsibility to understand their clients’ needs. A strong relationship between the broker and the client is essential to reaching a lease agreement.
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