The industrial real estate market began experiencing a surge in demand when sales volume spiked to nearly $80 billion in 2015. While many investors would have expected supply to catch up by now, it appears this market isn’t ready to cool off quite yet.
Top Market Driver: One of the top contributors to the strong industrial real estate market is the growing demand among several companies for a more efficient supply chain. While brick and mortar retailers are fighting to keep up with e-commerce, companies like Amazon.com Inc AMZN are pushing to further dominate the market.
The solution for both ends has been to implement a last-mile distribution strategy, adding distribution centers to more markets and bringing these facilities closer to densely populated urban areas.
Industry Insight: I was recently able to chat with Daniel McCleary, Associate Broker for Farbman Group, a full-service commercial real estate firm, to get a better understanding of where the industrial real estate market is heading.
McCleary doesn’t see demand slowing down anytime soon, saying “Suburbs are growing rapidly, so more last-mile distribution centers will be needed as this growth continues.”
It’s not only the new distribution strategy that’s propelling the demand for industrial properties. McCleary pointed out that changes in other industries will continue pushing the need for new developments.
“I see the demand in the market continuing with the shifts in different sectors," he said. "Look at the automotive industry for example. The shift to electric vehicles and even self-driving cars will result in the need for more research and development space and new parts suppliers.”
The supply shortages that nearly everyone has been experiencing since the beginning of the COVID-19 pandemic also has some companies bringing manufacturing back to the U.S. Intel Corporation INTC broke ground earlier this year on its $20 billion project to build two new chip factories in Arizona.
Others will likely follow suit if the CHIPS for America Act gets through congress to provide a $52 billion investment in research and development, manufacturing, and supply chain security for semiconductors.
How to Invest: It may not be feasible for most retail investors to purchase or develop an industrial property themselves, but that doesn’t mean there aren’t options to capitalize on the demand in this market.
Many industrial REITs have provided strong returns over the past year. Plymouth Industrial REIT, Inc. PLYM currently has a one-year total return of 70.79%, while several others in the sector have provided returns of over 30%.
Other retail investors have invested in deals directly through real estate crowdfunding. Platforms like CrowdStreet often have offerings available for industrial developments and acquisitions.
Photo: Hannes Egler on Unsplash
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.
