Congested Supply Chains, Shift to eCommerce Boost Industrial Sector
Accelerating e-commerce, strong consumer demand amid supply chain bottlenecks and businesses restocking their inventories are benefiting industrial real estate, reported Wells Fargo Economics, Charlotte, N.C.
“This confluence of factors has led to soaring demand for industrial space, drawing in a wide array of developers, logistics companies and investor capital,” Wells Fargo Economics said in a report, Supply Chain Snags Feed into Industrial Property Bonanza.
The report noted supply chain bottlenecks at the nation’s largest ports, including The Port of Los Angeles and the Port of Long Beach, which together account for 30 percent of the containers shipped in the United States. It said more than 75 ships on average waited to berth in November, more than at any other time in the complex’s history.
“Normalizing supply chains in the short term will likely take some wind from the sails of industrial demand,” the report said. “[But] longer term, we expect to see more businesses fortify their supply chains and maintain precautionary inventories, which will require more port capacity, warehouses and highway and rail infrastructure.”
Industrial net absorption jumped to 161.7 million square feet in the third quarter, by far the largest figure since records started in 2002, Wells Fargo Economics said. Surging demand pushed the national industrial vacancy rate down to 4.6 percent from 5.1 percent in the second quarter, the sharpest sequential decline on record. Industrial rents have increased 7.2 percent year to date.
Industrial property valuations have increased 18.9 percent on a yearly basis, more than any other major commercial property type.
“The surge in industrial demand brought on by crowded ports and other pandemic-related supply chain disruptions is clearly a short-term boon for industrial fundamentals,” the report said. It forecast the increased spending that has overwhelmed distribution channels is beginning to moderate. “One benefit of a slower pace of consumer spending is that a thinning flow of goods through the nation’s supply networks will help alleviate port congestion and jammed distribution channels,” the report said.
If supply chains normalize, that would remove some of the urgency for extra warehouse space and slow industrial demand a bit in the short term, the report noted. “Longer term, however, businesses fortifying their supply chains and keeping precautionary inventory on hand will continue to support demand. The shift to e-commerce, which is still in its early stages, will be a long-term boon for industrial demand. In terms of supply, new industrial construction is moving forward at a rapid clip. Yet, net absorption has easily outpaced net completions in each of the past four quarters, which suggests that the pace of new construction is still catching up with soaring demand.”
