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Commercial Trend Watch: 3 Industrial Market Trends to Keep an Eye On

October 25, 2019
Commercial Real Estate Trends
By: Jason Holte

The RCM-SIOR Industrial Investor Sentiment Report is out! What is the state of the industrial market as 2020 approaches?

On a rainy afternoon at last week’s SIOR Fall World Conference in Portland, Real Capital Markets, a LightBox company, and SIOR released their third annual Industrial Investor Sentiment Report. With industrial real estate expected to remain a coveted asset class within commercial real estate, the chance to gain insight into the thinking of industrial investors was a welcome one for the brokers in attendance.

Aerial View of a warehouse | 3 industrial market trends to keep an eye on

This year’s report contains several encouraging indicators for the industrial market heading into 2020, and overall, the industrial investors surveyed are optimistic about the state of this asset class. Let’s dive into three of the report’s key findings that are worth monitoring as the year draws to a close.

E-Commerce Growth Drives Industrial Market Activity

One key factor that continues to drive warehouse and distribution activity is the continued expansion of e-commerce, which the investors surveyed by RCM expect to grow by 10% next year. From the report:

“Like most sectors, industrial real estate remains a very localized market asset. E-commerce has brought a globalized focus to this sector, and may be a constant thread across the country, but the majority of markets also are driven by the local market users, needs and economic considerations,” according to Mark J. Duclos, SIOR, CRE, President, Sentry Commercial.

We’ve explored how evolving consumer behaviors and the rise of e-commerce have impacted the commercial real estate industry, and as more transactions continue to take place online rather than in stores, it’s no surprise to see this trend continue to influence the industrial market. Industrial brokers and land developers alike should continue to monitor this trend and ensure that they have the market and property information that they need to act on these opportunities as soon as they arise.

Rent Growth in Land Constrained Industrial Markets

Another trend identified in the Industrial Investor Sentiment Report is an increased ability to find promising opportunities outside of primary markets. Investors indicated that land constrained coastal markets such as California, Florida, and New Jersey represent the largest opportunity for rent growth in the industrial market. To quote the report:

Pendleton White, President and Chief Investment Officer of Plymouth Industrial Realty in Boston says, “We believe, and have for some time, that the risk adjusted return metrics for Class B properties in secondary markets are better than Class A properties in primary markets.”

For brokers seeking to capitalize on this trend, this may require getting up to speed on markets outside of the ones in which they normally operate. Quality location technology and data can help savvy brokers become local market experts more quickly than they could by canvassing a new area or relying on secondhand information.

Speculative Construction and Overbuilding

Industrial construction continues to increase in many markets, a trend that we have noticed firsthand with the rapid expansion in the Inland Empire taking place not far from our California office. From the RCM-SIOR report:

The industrial sector has seen a significant building boom over the past five years, with millions of square feet added in markets such as Atlanta, the Inland Empire, Chicago, Dallas, Los Angeles, and many others. That construction has been tempered by a lending environment that is focused on a more balanced supply/demand scenario. Most markets have benefited from that discipline.

Despite this increase in building activity, concern about oversupply remains in the low to moderate range. 84% of investors surveyed by RCM reported that they were either not concerned or somewhat concerned about the potential for overbuilding within the industrial market.

Learn More

For more on this topic, we highly encourage you to download a copy of the RCM-SIOR Industrial Investor Sentiment Report today! To learn how our map-based real estate application, LandVision, helps some of the top industrial brokers in the country find off-market opportunities and win more deals, request a free demo.

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