A Banner Year for Industrial Real Estate

In 2022, the industrial real estate landscape experienced the continued supply/demand imbalance characteristic of the last three years. The explosion of the ecommerce business – which was already expanding rapidly when it skyrocketed with the onset of the pandemic – has accelerated the need for more industrial space in high-population as well as secondary and even tertiary metros. Unfortunately, inventory is minimal and, even with the addition of buildings in the development pipeline, is not forecast to meet backed-up demand, according to the metrics of Prologis, the industry’s largest public REIT. Of the inventory that does exist, over 30% was built more than 50 years ago and cannot accommodate modern automation requirements nor allow for contemporary racking for distribution facilities.

As such, vacancy is at historic lows and developers are scrambling to capitalize on the demand. With land pricing continuing to increase at unprecedented levels, developers and end-users are weighing key factors like location, scale, and labor access to optimize distribution operations. And this is all happening at breakneck pace: 2022 is on track to become a record year for new construction, high absorption, low vacancy, and average asking rents, and many market experts predict that the unrelenting demand for industrial space will continue will beyond this year.

However, occupiers with industrial requirements may soon feel some relief. The second half of this year has witnessed news such as Amazon’s and FedEx’s recent announcements that their national expansion is slowing. Competition may ease up and create opportunities for last-mile warehouses in urban areas and larger regional distribution hubs. In response, occupiers should be prepared to be strategic and decisive. Consider streamlining internal approvals processes to familiarize stakeholders with the state of the market and align the team around demands and objectives. Additionally, team up with real estate partners who are nimble, creative and knowledgeable to be sure you have the right experts in your corner to help you navigate a shifting landscape.