The Outlook for Industrial Warehouse Investing

A recent report on the industrial sector highlighted some of the facts and trends recording this industry. Here are some of the latest statistics for this niche.

  • Only 5.1% of the nation’s industrial space is vacant. This is the lowest rate in history despite 243 million square feet of new space constructed in 2017. This is the result of a fundamental shift in how our economy works. With current focus on speed of delivery, many more items must be kept in inventory, requiring much larger numbers of structures to house this inventory. With the on-line industry still in its infancy, this trend should continue for decades.
  •  There is a trend for U.S. manufacturers to relocate their operations back to the U.S. in order to take advantage of tax advantages and avoid tariffs. In addition, American workers in some markets are now on par with the cost of workers in foreign countries. In Alabama, for existence, it is currently less expensive to build a car there than in Mexico, thanks to the rising cost of labor and shipping from Mexico. The great American expatriation of manufacturing overseas has now shifted, and those returning jobs are creating more demand for industrial buildings.
  •  On-line purchases have skyrocketed as more Americans learn how to use this feature and there are certain advantages on tax, time and gasoline with shopping on your computer. And the future opportunity is huge. In April 2019, on-line shopping exceeded 50% of all non-food buying activity, which means it could still theoretically double as more Americans realize the benefits and become more familiar with the process.
  •  Warehouse space is becoming extremely in-demand in urban locations with younger populations, since many companies – such as Amazon – are focusing on these areas. Amazon did a years-long search for two new campuses, and selected markets that have the talent they desire – younger and more techno-savy. This is a continuing trend as the internet is deemed to be an industry for hip millennials and these companies strive to locate in these areas.
  •  Class-A industrial space rents have increased from $6.29 per square foot, which is a 7.5% increase over the prior year. Higher rents are anticipated going forward, due to higher demand. It’s a simple rule of supply and demand that as demand goes up, so does pricing. The demand is increasing, in fact, higher than the pace of new construction, which is what is causing rents to increase so dramatically.
  •  There was roughly $72 billion in sales of industrial properties in 2017, which was a 20% increase over the prior year. Since this report was produced, Blackstone – one of the largest private equity groups in the U.S. – announced that it was buying $18.7 billion of industrial properties in one single purchase, which will spike this number even higher in 2019. The reason for all of this acquisition activity are the favorable signs in this sector.

The future of industrial properties appears bright. The statistics are favorable for investing in this niche, as long as you choose the correct properties and markets.

 

By Frank Rolfe

Frank Rolfe has been a commercial real estate investor for almost three decades, and currently holds nearly $1 billion of properties in 25 states. His books and courses on commercial property acquisitions and management are among the top-selling in the industry.