During the height of the COVID-19 crisis, the industrial real estate market was the outlier, growing in spite and in some cases because of the pandemic.

The growth of e-commerce and the need for logistics, warehouse and distribution facilities in 2020 and 2021 fueled investment, development and expansions in the industrial sector in Orange County and in key markets across the nation.

Brokerage firm Cushman & Wakefield recently issued a report on the industrial market for the spring of 2021 where it noted that two recent developments—the Presidential election in November and the $1.9-trillion federal stimulus passed in the first quarter of 2021— have given it cause to heighten its expectations for the industrial sector this year.

“As more of the population is inoculated and the stimulus works its way into the economy, confidence is expected to rise leading to a surge in spending as consumers will resume many of the activities that they had to curtail last year (e.g., restaurants, movies, travel, etc.). We expect the recovery in the U.S. to continue through 2021, with strength backloaded in the second half of the year,” the report stated.

Cushman & Wakefield predicts the North American industrial absorption from 2021 to 2022 to be healthy at 481.3 million square feet, but new supply has surpassed demand two years in a row and this trend is expected to continue over the next two years with new deliveries projected to reach 697.3 million square feet from 2021 to 2022. However, the North America vacancy rate is forecast to remain low, settling in at 6.2% by year-end 2022, which is on par with the 10-year average of 6%.

Some positive trends for the industry include that e-commerce sales have grown 40% from 2019 to year-end 2020, according to the United States Department of Commerce. According to the Statista Digital Market Outlook, e-commerce sales are expected to rise another 10% in 2021 and reach 19.2% of total retail sales by 2024. At the end of 2019, e-commerce’s market share was 11%.

In terms of the logistics sector, Cushman & Wakefield noted, “Efficiency in the transformation and distribution of goods from raw material to final market sourcing continues to be the driving force relative to site selection. Location strategy and availability of sufficient labor are more critical than ever. With increased competition worldwide and greater need for space than ever before, end-users/occupiers are becoming more innovative and cost conscious prior to final site selection.”

Cushman & Wakefield offered a number of observations on trends in the industrial sector that included:

• Assets with long-term leases with credit are in the highest demand and command the most aggressive pricing, especially in core U.S. Markets.

• Class B and, in some cases, Class C assets in secondary/tertiary locations are in demand with investors seeking higher yields.

• For the most part, industrial assets are being purchased at higher prices than pre-COVID-19 pricing.

• Deals are moving forward with plenty of dry powder available to close.

• Fortunately, “the U.S. Industrial Market is not overbuilt as was the case during the 2008 credit crisis.”

• Solid rent growth is anticipated for the remainder of 2021 and into 2022.

• Manufacturers are increasing their depleted inventories as supply chains continue to ramp up.

• Supply chains are moving forward and will lead to more e-commerce online shipping, especially in light of the fact that retail stores, shopping centers and regional malls are being financially impacted.

• Leasing activity is moving forward, with only moderate rent delinquencies.

• Possible tariffs on oil and pharmaceutical imports should boost the manufacturing sector especially since far more manufacturing is expected to return to the U.S. rather than Asia.

• No major concerns or foreseeable rising interest rates to materially affect pricing.

• Logistics, food and beverage, cold storage and Bio Tech/Pharmaceutical assets are the preferred asset classes. However, e-commerce is clearly driving the demand as online shopping continues to accelerate.

• Fundamentals are in-place supporting a solid 2021 industrial outlook.

To access the full Cushman & Wakefield report, go to: https://www.cushmanwakefield.com/en/united-states/insights/what-is-next-for-industrial-investors