Cushman & Wakefield's Industrial Leads On What's Next For This Booming Market

While some real estate assets faltered in the wake of the coronavirus pandemic, such as retail and hospitality, industrial soared. The industrial market experienced 366M SF of net absorption so far this year, compared to 306M SF in all of 2018, and industrial vacancy fell to an all-time low of 4.1% in Q3 2021, according to Cushman & Wakefield Research.

These strong numbers have been influenced by a number of factors including, most notably, the continuing e-commerce boom.

“The pandemic amplified a lot of the structural trends that were already happening, like the move to e-commerce and the rise in demand for real estate to accommodate e-commerce companies,” said Jason Tolliver, executive managing director and co-lead of Americas’ logistics and industrial services for Cushman & Wakefield. “I don’t anticipate the demand changing anytime soon.”

Tolliver and his colleague Nicole Bennett, who also holds the title of executive managing director and co-lead of Americas’ logistics and industrial services, head up Cushman & Wakefield’s robust industrial platform. It consists of more than 850 industrial brokerage professionals offering agency leasing, tenant representation, facilities management and a full suite of investor services. 

Using a co-lead model, with Tolliver running the investor side and Bennet focusing on occupiers, allows them to take a divide-and-conquer strategy where they can combine their strengths, share information and provide the best service to their clients on both sides of the market. 

Tolliver said that industrial is seeing very tight market conditions, and he believes this will continue for the foreseeable future. The main shift both occupiers and investors are experiencing, he said, is that the value of real estate to their business is greater than ever before. 

“Industrial real estate is not a cost center that you want to just maintain,” Tolliver said. “It is a mission-critical aspect of your business. Whether you're delivering goods and products to consumers, an e-commerce brand or just a traditional industrial occupier, it is key that you make sure that you can deliver service uninterrupted and that your real estate is really helping you to safeguard against an increasingly large number of supply chain disruptions.” 

Bennett added that her industrial occupier clients are trying to strike a balance between getting things delivered to their customers as quickly as possible while mitigating rising supply chain costs at the same time. 

“Our clients are trying to find that balance between rising service level expectations of their customers, who expect deliveries to come faster than ever, with the struggles that they're having within their supply chain, whether it's port congestion, labor shortages, transportation constraints or any of the other things driving up supply chain costs,” Bennett said. 

As for which industrial markets are experiencing the most growth, Tolliver said it would be difficult to find a market that isn't booming, but Atlanta, Chicago, Southern California, and the northern New Jersey and Pennsylvania corridor continue to drive the largest numbers, along with certain areas of Texas. Additionally, there has been increased movement in what some would call secondary cities that are known for having inland distribution centers that connect products to people. These include Phoenix, Salt Lake City, Las Vegas and Reno, Nevada. 

“If you're pivoting more towards the Midwest, Indianapolis, Cincinnati and, to a lesser extent, Columbus are markets where occupiers are looking for multiple industrial properties so they can serve both the East Coast and the large population centers in the Midwest,” Tolliver said. 

The problem, Tolliver said, is that there just isn’t enough space to go around. Roughly 96% of industrial space in the Americas is occupied, according to Cushman & Wakefield’s research. At the rate the demand is going, even without accounting for increased e-commerce adoption, the U.S. and Canada are going to need 1.5B SF of logistics space in the next five years. 

“Without question, industrial rents will continue to rise and there will continue to be excellent opportunities for institutional investors who are looking to invest in an asset class with really strong long-term fundamentals,” he said. 

Bennett said another issue facing the industrial market is the ongoing labor shortage, which is impacting everything from service at the drive-thru to industrial occupiers being able to pack and ship their orders. As a result, labor costs are going up 20% to 30% in some markets. 

“The labor shortage is driving up costs tremendously, which ultimately is going to affect consumers and slow down service delivery time,” she said. 

Despite these issues, both Tolliver and Bennett have a lot of faith in the industrial market. Tolliver said many venture capital firms have been entering the space and have invested $30B in recent years specifically targeted at logistics, with a large amount of that going to developing technology to solve the labor challenges. 

Meanwhile, Tolliver said, the Cushman & Wakefield industrial team continues to find its clients the right product, working to ensure that they will see strong returns on their investments, and being trusted advisers who can help them solve all of these complex challenges.

“Industrial isn’t going anywhere,” Tolliver said. “I think it's going to be a beacon. It's definitely not a flash in the pan. It's an asset class that is going to offer outsized returns for the foreseeable future.” 

This article was produced in collaboration between Cushman & Wakefield and Studio B. Bisnow news staff was not involved in the production of this content.

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