Industrial Real Estate Outlook: 2018

With e-commerce growth, infrastructure legislation, and increasing interest in last-mile warehousing as driving forces of the industrial real estate market, the demand for industrial real estate space continues to remain steady from 2017. From diversity of industry demand to the budding use of automation, below are some emerging logistics real estate trends for 2018:

E-commerce Growth

E-commerce has continued to set records each year and 2018 is no exception. In the third quarter of 2017 alone, nearly 25 percent of U.S. leasing demand came from e-commerce companies expanding their existing market footprints.¹ With e-commerce representing approximately nine percent of all U.S. sales, it’s predicted that it could reach as high as 14 percent within the next few years.² As consumer demand increases and the market for rapid delivery grows, additional distribution center space is needed now more than ever.

Tightened Capacity Due to Diversity of Demand

While e-commerce, without a doubt, will continue to be a driving force within the industrial real estate market, we can expect a little more diversity of demand in 2018. Residential construction was among the fastest-growing industries within the past couple of years,³ while healthcare demographics have created a need for even more medical devices, equipment, and pharmaceuticals due to structural changes. These industries will require more space to expand their supply chain this year, resulting in even tighter capacity.

Major Infrastructure Legislation

Because trade agreements are being renegotiated under the current administration and the tax bill is nearing completion, a major infrastructure legislation may take place – meaning roads, bridges, rail roads, and ports will be upgraded for further urbanization to take place. Raw materials are required for these upgrades, therefore increasing the demand for warehouses to store such materials.

Urban Warehousing Demand

Last-mile warehousing space is becoming a priority for companies in order to extend reach and connect more closely with customers. Rather than honing in on a single mega warehouse, national and international businesses are focusing their strategies on many smaller distribution centers and warehouses that are closer to labor and customers. High demand paired with limited capacity within major metropolitan hubs, such as Northern New Jersey, Boston, Detroit, Los Angeles, and Houston,⁴ will make finding the right location for their needs challenging.

Automation and Robotics

The use of automation and robotics has grown within warehouses and distribution centers, which ultimately affects the design of the facilities – in turn, this will increase demand for build-to-suits and future renovations to existing buildings. As technology continues to improve, more businesses will make use of it to deploy inventories, but the growth won’t be too rapid. For now, companies are hesitant to invest on the technology as a result of limited return on investment due to variability and seasonality so this is a trend that is only beginning to emerge.⁵

According to Michael Landsburg, VP of Real Estate at NFI, “With the strong current economy, the desire for a prime location, and an increase in industrial facility demand, we can also expect capacity to continue to tighten. This limited capacity will continue to drive up costs and push supply chains to further adapt in order to remain efficient. Companies can prepare for the future by developing a strategy for potential expansion while taking into consideration the above trends to decide on a location, as well as whether it’s more suitable to lease or develop.”

Michael J. Landsburg is the Vice President of Real Estate at NFI and has been with the company since 2005. He is responsible for managing the real estate activities for the NFI owned and leased portfolio of over 41.5 million square feet in North America.