Industrial Real Estate Professionals Give 2020 Industrial Market Outlook

The amazing team over at NAI Global had South Carolina-based Regina Corso Consulting, a market research firm,  conduct a Real Estate Outlook study. The study was done by surveying NAI professionals from over 30 U.S. states and a dozen international countries.

The survey was conducted between April 6 and 27, 2020 and 252 professionals completed the survey. The survey focused on three core product categories: office, retail and industrial properties, but below we’ve focused on just Industrial. For a copy of the copy real estate outlook, contact us.

One thing which stood out from the report was something we’ve mentioned in previous posts, the change in demand for retail and increased demand for distribution, will have a continued positive effect on the demand for industrial real estate.

In the survey , 83% of those surveyed said the industrial and retail real estate sectors have seen an “Amazon effect” in their respective markets, meaning store closures in combination to greater demand for Class A distribution-focused industrial buildings is clearly evident and driven by the ever-expanding reach of e-commerce. (Editorial note: about 100,000 stores are expected to close over the next five years – more than triple the number shut after the Great Recession, as e-commerce jumps to a one-quarter of U.S. retail sales compared with 15% last year, according to UBS)

Industrial leasing activity and inquiries are hot or heating up according to the majority of respondents (51%) while 20% say it is cooling down or cold and 29% say industrial leasing activity is flat.

Regarding supply and demand, 21% say there is a moderate supply of industrial product in their respective markets and even less supply of quality industrial buildings. Two-thirds (65%) say inventory supply is low and over one-third (36%) say the amount of product under construction is not adequate to meeting demand while 29% say the amount of new industrial buildings under construction is adequate to meet demand. Nearly one in 10 (9%) say there is an industrial building boom underway and just 5% say their markets are over-supplied.

As far as industrial occupiers by industry are concerned, 66% say consumer-product companies are driving demand for industrial properties, while over half (54%) of demand is driven by manufacturing companies and about one-quarter (24%) of demand is coming from retailers. Respondents said 12% of demand is from energy companies, only 6% is from distribution companies and just 2% of industrial property demand is by e-commerce companies.

Market forces driving demand for industrial space include business growth of industrial space occupiers that require more square footage (49%), 38% say it’s because their geographic location has become desirable to industrial occupiers, while 37% expressed the quality of life, lesser commute times and lower cost of living in their respective communities as reasons for industrial site selection.

Nearly a third (30%) say the availability of industrial properties is spurring growth and 29% say corporate relocations has increased demand for industrial buildings in their regions.  In terms of activity with industrial property, 81% say leasing drives activity while 9% say acquisitions and dispositions drives activity.

Similar to the office market, the COVID economy has reversed the multi-year trend of it being a landlord’s market to the current status as a market favoring tenants. Accordingly, three in five (62%) say landlords are offering more flexibility on lease terms while 59% say rent concessions are being offered by landlords to attract new tenants and even to retain existing tenants.

Even so, less than half (45%) of the landlords in their markets are offering incentives, respondents say, and one-quarter (26%) are marketing their properties beyond their traditional geographic zones to attract new tenants. Over two in five (22%) are improving current amenities and 13% of landlords are adding new amenities to their properties.