Industrial Demand Increases As Inventory Shrinks
SUPPLY VERSUS DEMAND…we seem to always struggle with an imbalance of one or the other. For years we had way more supply of industrial spaces and buildings than demand. In the last few years, it’s just the opposite. When this happens, we usually see rents and selling prices increase. Market statistics show that is happening much to the pleasure of landlords and building owners. Tenants and buyers are paying more than they have in a long time.
The rapid growth of e-commerce is one of the main drivers of industrial space demand. More and more people are finding it convenient to click a mouse and get some product delivered to their doorstep the next day. E-commerce deliveries tripled between 2013 and 2018, prompting companies to seek more urban infill warehouse locations so they can provide faster deliveries to consumers.
According to a May 30, 2019 article by Saurabh Mahajen writing for Deloitte Insights, a side effect of all this e-commerce driving warehouse space needs is the fact that customers are three times more likely to return products they bought on-line vs those they bought at a store. All those returns require even more warehouse space. With e-commerce sales expected to grow at a rate of 15% per year thru 2023, demand for an additional 850 million sq ft of industrial real estate is projected in the US.
Trying to put a local perspective on this demand uptick, there was around 3 million sq feet of net absorbtion in McHenry and Northern Kane Counties in 2018. Empty space was gobbled up which drove vacancy rates down to 4% and below (per Jones Lang LaSalle Research). This means to me as a broker that finding suitable space or a building for a client is much harder than it was a few years ago. What this means to landlords and sellers is they can charge more for their product because tenants and buyers will pay more.
All this means that if you have an industrial building to sell, this may be your best time to put it on the market. Even if it’s not a warehouse suitable for e-commerce, there is likely someone out there who wants to buy or lease it. Business cycles being what they are, this condition won’t last forever.
Bruce S. Kaplan is a Senior Broker Associate with Premier Commercial Realty in Lake in the Hills and can be reached by email at email@example.com.