3 Industrial Sector Trends to Watch in 2017

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The industrial sector has been under watchful eye over the past few years —and rightfully so. An increased demand from e-commerce and third-party logistics companies for warehouse and distribution space coupled, with a high demand for in-fill locations throughout major metros, has caused a great shift in the sector.

Additionally, the ongoing expansion of the Panama Canal continues to be a big driver of industrial trends, as it will continue to reshape supply chains and industrial development.

As we prepare to embark on 2017, what does this mean for the industrial market moving forward? What trends should we be keeping an eye on? Here are a few that will likely make an impact:

1. E-commerce a Leading Driver

As last-mile delivery systems and next-day shipping options improve, e-commerce will continue to shape the industrial market —as well as many other commercial real estate sectors like retail and office. The race to get product to consumers are quickly as humanly possible (and maybe even faster) is making companies rethink their warehouse spaces —moving them closer to the consumer, and serving as pass-through warehouses to facilitate faster delivery. This will continue to impact where warehouses are being built and the types needed.

2. Industrial Investment Continues

A recent Q2 2016 report by JLL on the state of the industrial market reveals that industrial investment volumes will continue to experience growth:

First half year-over-year investment volumes were down 47.2 percent, a drastic reduction in overall activity at first glance. However, if the five largest industrial transactions—all deals over $250.0 million—were excluded, total volume for the first half were only down 8.0 percent since last year. The investment environment will remain robust throughout the close of the year as investor demand for industrial assets further advances due to the pronounced overall strength of industrial fundamentals. Total volume is expected to be more subdued than last year’s record-breaking total. However, excluding the five largest transactions of last year, volumes will likely continue to experience growth in the industrial sector.

3: Demand May Exceed Space

The Journal of Commerce explains that warehouses and distribution centers near the largest U.S. population centers are filling up fast. The vacancy rate of 6.4 percent at the end of 2015 was the lowest in 15 years and has continued to get tighter as retailers’ demand for space outstrips supply.

The top 12 regional markets are experiencing record low vacancy rates because of the steady recovery of consumer demand and the acceleration of e-commerce sales. As a result, industrial real estate space is tight, especially in Tier One markets such as Southern California’s Inland Empire, Chicago, Dallas, Atlanta, and New Jersey and eastern Pennsylvania.

Keeping a Watchful Eye

What trends are you seeing in the industrial sector in your particular region and/or city? As real estate professionals, keeping a watchful eye on these trends will only help your market knowledge and ability to better service your clients.