Many of the Traditional Asset Classes Have Been Facing Extensive Challenges Over the Past Year
However, at the time of writing, industrial commercial real estate serves as an exception. Consisting of warehouses, distribution centers, manufacturing facilities, data centers, cold storage facilities, and even life sciences buildings, industrial commercial real estate is experiencing an uptick — and it has the statistics to prove it:
- Low Vacancy — As of April 2023, the average vacancy rates for industrial assets stood at 3.9% — much lower than the 16.7% national average for office assets.
- Low Cap Rates — Thanks to low vacancy and rents being up 7% year-over-year, industrial assets continue to see strong earnings, keeping cap rates favorable.
- Market Share Growth — The market share for industrial assets has doubled since 2016 and now takes up one-third of the market today.
These are just a few of the reasons why industrial commercial real estate is high on investors’ radar, but they’re primarily commercial real estate industry data points. What about these assets themselves is contributing to their popularity and growth? Here, we’ll explore some key trends that are influencing the performance of industrial assets.
Factors Influencing Industrial Commercial Real Estate Growth
1. The Continued Growth of eCommerce
The growth of eCommerce purchases during the pandemic has continued to steadily increase years after the initial boom. According to reporting from the U.S. Department of Commerce, eCommerce accounted for 15% of total retail sales — an increase of 3% from Q4-22 and nearly 8% from Q1-22.
With consumers continuing to expect “everything on demand” and companies pressing forward on optimizing logistics, inventory management, and more, it’s no surprise that eCommerce continues to drive industrial asset purchases and new builds. Companies are expanding in order to secure the best locations possible to meet demand and streamline distribution, and industrial assets are key to that strategy.
2. Reshoring Operations
Following the supply chain and logistics challenges of 2021 and 2022, companies with international suppliers and operations had to rethink their approach in order to avoid bottlenecks, extensive lead times, rising costs, and consumer backlash. As a result, companies are actively engaged in or are thinking about re-shoring for better oversight and risk mitigation. Thus, the need for industrial commercial real estate has increased.
The need for industrial assets isn’t limited to OEMs — the tiered suppliers that support them in their supply chain and production processes have a greater need for industrial facilities. With more production being re-shored to the U.S., timelines and expectations will get tighter — creating the need for suppliers to strategically position themselves where they can effectively compete for business and add value.
3. Transportation & Logistics Costs
Closely related to the above is companies’ desire to reduce their logistics costs and risk. It was a challenge during the supply chain crisis of recent years, but it’s even more of a challenge today with rising rates and inflation. Companies are investing in their footprint to offset these costs over the long-term and to streamline how products and materials move between production stages or on to customers.
Construction has played an important role here. Depending on the organization and their strategy, building may be the best route versus buying an existing industrial asset as it allows the company to optimize the facility from the start. This approach is picking up steam, with construction spending on new industrial assets having increased to around $147 billion in March 2023 — up from $90 billion in 2022, according to U.S. Census data.
Use the Right Tools to Achieve Your Goals with Industrial Commercial Real Estate
Whether a good portion of your portfolio already consists of industrial assets or you’re considering getting started with them, it’s critical to leverage the right tools to help you manage this asset class effectively. Covercy is the first real estate syndication platform where banking meets investment management. Using just one system, you can:
- Manage your entire database of investors, vendors, and assets
- Pitch deals and track investor engagement throughout the process
- Open, manage, and track bank accounts tied to specific assets or funds
- Conduct fundraising efforts and issue capital calls to accelerate your efforts
- Skip the hassles of “wire day” and automate distributions to investors
- And much, much more
Experience What Covercy Can Do for Your Firm
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