Amid positive national jobs growth and the imminent threat of COVID variant 19 threatening to the economic rebound, the industrial real estate market has experienced tremendous growth as people return to work.
'Absolutely, if you are a landlord right now, it is the best of times because the industrial sector has had no slowing down, said Savills Executive Vice President Gregg Healy at Yahoo Finance Live. 'You can ask anything you want for rent and often times people go knocking on your door trying to lease that space up, including in the major industrial markets.
Healy said however, circumstances are quite different for those looking to rent industrial real estate.
"If you're a tenant on the other side, you're facing big challenges," Healy added. Are rent increases coming in certain markets?
Healy joined Yahoo Finance Live to discuss the state of the industrial real estate market as well as investor hotspots in the space. Savills plc is a London-based global real estate services provider listed on the London Stock Exchange. The company operates from over 600 offices across 70 countries and currently employs over 39,000 people.
According to Healy, e-commerce and the pandemic have been the two driving forces behind industrial development boom. He cited 300 million square feet of Industrial real estate absorption in the United States last year and more than 252 million square feet of industrial square footage in that country, going on the market this year as the main indicators of the boom. Healy predicted that another 342 million square feet will go on the market in 2022.
'So over 700 million square feet - in the next 2 and 1 2 years — of industrial square footage will add to our current inventories to help alleviate some of the challenges faced by this market, Healy said.
As for investment opportunities, Healy said that it is important to 'go where the people are. He noted that because markets in the South and Southeast are seeing some of the highest population growth rates in the country, more industrial resources are being allocated to those locations. The northeast, however, yields a different story.
'The Northeast has been declining, and some areas are flat, Healy said. 'Those areas, I think, are a little bit more suspect when it comes to investment for industrial real estate. Unless you are looking at maybe repurposing existing sites to get closer and have an advantage there for transportation purposes specific.
How can momentum be sustained?
As the pandemic was largely responsible for the industrial real estate boom, the question of whether or not the uptick in industrial demand will remain is raised as a result of the pandemic. Healy said Savills is anticipating e-commerce growth to comprise 26% of all retail sales in the U.S. by 2025. In addition, he estimated that every billion-dollar increase in retail sales and e-commerce will require 1.2 million square feet of industrial property.
If these forecasts prove true, Savills said that there could even be higher threshold industrial requirements for Healy that he has not yet considered, further boosting the demand for property. However, the rate of expansion in e-commerce is expected to slow within the next couple of years as consumers readjust to the acceleration initially brought by pandemic conditions and return to brick and mortar stores.
'We have, right now, the highest number of people working in manufacturing in 37 years, but we still have a deficit of 500,000 people working in those spaces, Healy said. 'So if we can continue to reinvest in the United States, and bring some of those jobs to it, we will still have a large requirement for industrial space.