When it comes to the industrial sector, the 2020's promise to be a recap of the 20th Century's Roaring 20's. Here are the five exciting trends that see coming to the fore in the industrial commercial real estate space.
1. The Last (Swedish) Mile
In Sweden, a mile isn't a mile. Instead, it's 10 kilometers, which works out to 6.2 miles. For a few years, we've talked about the importance of the "last mile" in logistics chains and demand for that kind of space has driven leasing activity for urban infill spaces. At the same time, though, large fulfillment centers will continue sprouting up on the outskirts of communities. Between same-day and next-day delivery time windows and drone deliveries, warehouse space that is "close enough" will be more than good enough in 2020 and beyond. 2020's last mile will turn out to be closer to the Swedish mile.
2. Logistics vs. Manufacturing
Pretty much every type of industrial space is doing well, but they aren't all doing equally well. Much of the excitement surrounding industrial real estate is really about the logistics space. While the "reshoring" trend that came to the forefront at the end of the last decade is likely to continue in 2020 and beyond, demand for manufacturing space won't grow at anywhere near the pace of warehousing space. This also means that development of manufacturing space will be moving more slowly than that of logistics-focused buildings.
The 5G cellular network, which will begin to spread beyond selected major cities in 2020, offers speeds and latencies that will change how we communicate. With multi-gigabit connections and latency times measured in just a few milliseconds, more data can move from more devices than ever before. And this will impact industrial real estate in two ways. First, smart buildings are going to get a great deal smarter with more communication between the building, the items in it and the transportation network that moves those items. Second, the requirement for more data than ever to fill the expanded 5G bandwidth will mean more demand for industrial data center space located close to areas with high 5G usage.
4. It's Hot...
As we said above, industrial will still be hot in 2020. According to the Urban Land Institute's Emerging Trends Report for 2020, fulfillment and warehouse space are the number one and two asset classes for both development and investment. The industry will build a lot of these properties and investors will buy them. Research and development space will also be popular among both cohorts, as well.
5. ...So Lease What You Can Find
While development will continue at a healthy clip in many markets, industrial space is still hot enough that the already-low vacancy rates for high quality assets in most major markets won't be changing a great deal. Other than shifts of a few basis points in markets without barriers to development, vacancy started the year very low and will end 2020 roughly the same. If you find good space, lease it while you can or someone else will!
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