Lane Kawaoka is a podcaster for SimplePassiveCashflow.com & Property Syndicator of 1B AUM (7500+ Rental Units)
We have seen the rise of e-commerce over the years as the pandemic caused rapid growth in the industry. What should have happened in five years in 2020 has been compressed into a few months. An increase in online shopping, migration of people from cities, increase in transportation costs and volatile consumer behavior have all contributed to a boom in the e-commerce industry.
But is this demand related to industrial space now and in the future?
Within industrial real estate, you are in a never-ending battle with delivery disruptions, changes in customer shopping habits, choices between remote or in-office setups, and dynamic residential migration. As an investor, you may be wondering why you shouldn’t just focus on multi-family homes when this segment is a tried and true investment strategy. While multi-family housing is a great area to invest in, I see industrial real estate investment as a diversifying asset class that will continue to grow in connection with the e-commerce industry and other areas.
Even with signs of lingering easements from pandemic restrictions and people visiting malls and moving back to a personal office setup, the convenience of online stores, the benefits of crafting real estate spaces, and the flexibility of things like a showroom won’t be neglected.
Industrial Property Defined
The sector of providing real estate for non-public industrial purposes is known as industrial real estate. Industrial buildings are rarely open to the public and are used for behind-the-scenes operations. These properties are typically large and include warehouse buildings for storage, production facilities and showrooms. Although industrial property is often mistaken for commercial property, they are two different entities. Industrial properties are not exposed to the customer, so there is no need to develop the interior and exterior to look attractive to the tenant.
Below I hope to outline some trends for those interested in this area of real estate.
Research and Life Sciences
In addition to the current e-commerce trend, new developments show that even the science sector is plunging into the industrial real estate arena. In fact, as in many areas of real estate, it is difficult to keep up with current demand, and there is a lack of available spaces for laboratories in many areas.
At the start of the pandemic, there was a desperate move to quickly come up with a solution to Covid-19. With the ongoing research into vaccines and drugs, the expansion of labs required specimen storage and the need for highly specialized buildings; this demand is expected to continue.
Observing this trend, changes in medical technology may require smaller labs to perform limited work; Related to this, some companies may move from a single centralized research center to several other smaller ones that are closer to residential areas.
Shifting production preferences ashore
Due to the delay in shipping and the ever-increasing tariffs that continue to result from the pandemic, many companies have realized how vital and cost-driven the supply chain is. In reality, two-thirds of North American companies want to move at least some of their production and procurement back to their nearby location. I see this as resulting in an improved labor market and increasing demand in the industrial space, especially now that huge space is needed to promote adequate social distancing.
E-commerce and hurdles to overcome
Interest in industrial real estate is growing as the world of e-commerce continues to expand. Distribution companies are busier than ever, needing space to store goods and coordinate shipping routes. The construction development of huge industrial complexes shows that the global economy and consumer demand for industrial real estate are on the rise†
While I believe there are many benefits to investing in industrial real estate, you should recognize some of the risks. If companies, especially large ones like Amazon, decide to find new ways to ship or if they decide to change routes and no longer need certain warehouses, the market can change dramatically. As I hinted earlier with things like supply disruption and changes in customer shopping habits, you have certain parameters of industrial real estate out of your control.
Take advantage of this question
To take full advantage of this demand, you need to monitor where the people migrate and control the industrial real estate market in those areas.
For example, many people from California are: migrate to Atlanta or Houston† Where there has been an increase in migration, you will likely also see an increase in commercial and industrial real estate. My main prediction is that in the coming years the warehouses will largely be located in regional areas, which will allow them to be closer to the consumer. This will bring the value of the properties closer to other property types and to higher rents.
Overall, I hope you can make more informed investment choices by understanding these trends in industrial real estate and how it differs from areas like commercial real estate.