Data recently issued in a report by Los Angeles-based industrial real estate developer CBRE highlighted the impact that the ongoing COVID-19 pandemic had on the United States industrial real estate market, for both the fourth quarter and calendar year 2020.
The report, entitled “Q4 2020 U.S. Industrial & Logistics Real Estate Figures,” observed that the fourth quarter represented the strongest quarter on record, adding that it capped off a year of robust demand, with the outlook for 2021 looking very healthy.
That sentiment is firmly supported by the reports various data points, including:
CBRE noted that a large portion of the record-breaking fourth quarter net absorption was the byproduct of the high amount of transactions that were closed in previous quarters, with occupiers leasing larger facilities to keep more inventory available, adding that, for all of 2020, there was a record 48 transactions for facilities of 1 million square feet or more.
“Industrial real estate enters 2021 with momentum,” the report stated. “E-commerce and the need for safety stock to counter potential supply chain disruptions is fueling strong demand. This will further push up asking rates and keep vacancy rates near record lows despite a large amount of new development coming on line.”
In an interview, James Breeze, CBRE Senior Director, Global Head of Industrial & Logistics Research, explained that the report’s findings speak to the continuous changes in consumer behavior buying more goods and products online, going back to the onset of the COVID-19 pandemic, going back to more than 10 months ago.
And he said that the strong industrial and logistics real estate activity leans towards occupiers, including retailers, wholesalers, 3PLs that are focused on augmenting their distribution footprints in a more timely and cost-effective manner, as well as ensuring there is enough inventory on hand, which he said was a big part of the story, especially in the fourth quarter.
“We are seeing more companies lease more space and at larger facilities to ensure that they have the right amount of safety stock or inventory on hand to avoid what happened in the first half of 2020,” he said. “That is where we saw a lot of demand come from over the second half of the year. Not having those disruptions are important for a company’s well-being, given the competitive environment we are in.”
With the likely possibility that, for many consumers, the shift to online shopping may become permanent, in that they will continue to prefer to shop online rather than at malls or retail stores, Breeze said that, from a real estate perspective, that is going to be more about inventory control and safety stock, which will lead to more larger facilities being leased.
“It really goes back to competition between retailers for goods they sell,” he said. “That makes it important for them to have the right inventory levels. Many companies are still in the early stages of ensuring they have inventory available for customers in a timely manner. There is still a lot of growth there from all angles, including retailers and wholesalers focused on inventory, and 3PLs in outsourcing roles.”