Industrial real estate is one of the few sectors experiencing major new development, reaching record levels in the past year. But will the current trends continue to support growth? It’s a question many commercial real estate professionals and developers should consider, especially as business needs shift to accommodate the rise in e-commerce.
Forrester Research estimated that the online share of the retail sector will reach the mid-teens during the coming decade, up from less than 10% today. As the e-commerce market grows, retailers are reducing physical store size and repositioning distribution centers to meet projected demand.
In turn, the space that used to be considered “back room” has been reimagined as fulfillment hubs featuring state-of-the-art technology. And, more often than not, these industrial assets are developing close to urban areas to enable same-day fulfillment of consumer orders. Amazon leads the growth, with 72 distribution centers in the U.S. encompassing 57,655,000 active square feet, and plans to open 11 more facilities.
Because of the significant of customization required by retailers and ecommerce businesses, many industrial facilities are being developed directly by the owners. Demands of this new industrial core include features such as excess clear heights, larger bays, more surrounding land for additional parking, and more power for fulfillment equipment. Clearance for modern conveyer systems, along with greater temperature control and power requirements, is also a concern.
However, existing industrial space will not be left out of the equation. With a 6.7% vacancy rate, this sector has posted 19 consecutive quarters of declining vacancies, according to a recent industrial forecast. There is strong demand for high-quality class A space, and new inventory is expected over the next three years, much of it over 100,000 square feet per building. The small building market will also tighten, triggering speculative development in this range.
Commercial real estate professionals will note that this environment holds great opportunities for growth in industrial real estate, but trends and technology demand flexibility within the market. The current boom demands clear foresight and caution, and the professionals at Intelica are prepared to help you capitalize on the commercial landscape. Contact us today.