5 Trends Happening in the Industrial Sector Right Now
Industrial is in its 4th revolution so says the World Economic Forum. In line with industrial factories of the 18th century, car manufacturing of the 20th century, and most recently, the computer revolution following NASA’s space race in the 60’s, today’s industrial revolution is all tech based.
What is being coined “industry 4.0” is typified by AI, robotics, machine learning, Smart tech, and the IoT. Record highs for consistent growth and absorption rates have also come to exemplify today’s industrial real estate market. 5 trends we are seeing in the industrial sector support the idea that a revolution is indeed occurring.
1. Lots of Activity, Fewer Deals
Industrial has led all CRE sectors for the last few years due to e-commerce’s need for warehousing and distribution. Last year, the sector saw a 3.2% increase in investments and sales have been rising annually by 15%. According to the same report by CBRE, the first quarter of last year marked the 28th consecutive month where absorption rates in industrial and logistics remained above 95%.
Supply is tight all over the country while demand is only increasing. Experts point to a lot of activity in secondary and tertiary markets as primary market pricing is slowing down or hindering a lot of potential deals. While activity is still ongoing, new construction is not keeping up with demand, demand is increasing, but tightening markets and increasing rent prices show fewer deals happening lately.
2. Industrial Products are Becoming More Diverse
E-commerce retailers recently discovered the benefit of owning big box stores and vacant office campuses to house their distribution and warehousing operations. Those spaces however do not help avoid the last mile issues confronting on demand delivery. In an attempt to facilitate deliveries closer to city centers, demand in industrial products is diversifying.
According to the numbers, the top industries utilizing diverse spaces in those markets are 3PLs, food and beverage, and e-commerce. Healthcare supply deliveries are also taking up space in local markets where special accommodations like refrigeration or medically licensed drivers are required. Big boxes are still in demand but smaller assets are in even higher demand right now.
3. Supply Chain Needs Dominate Industrial Demand
ULI’s Emerging Trends in Real Estate Report for 2018 showed that the best performing industrial spaces are all part of supply chains. Fulfillment center prospects are trending “excellent”, flex space prospects are deemed “good”, and warehousing and manufacturing “fair.” Demand for these types of spaces are all on an upward trajectory going into the last half of 2018.
In addition to fulfillment, industrial is seeing another hot new trend in the use of data centers. The cloud is not invisible. All data is stored somewhere on a server usually housed in a data center. Multiply the number of tech companies, cloud providers, and other data managers, and it is easy to see why data centers are one of the hottest trends in industrial right now.
4. Foreign Investors Jump into Secondary Industrial Market
American investors started targeting non-traditional cities in secondary markets for industrial space over the last couple of years while foreign investments remained concentrated in class A assets. Now foreign investors are quickly buying up secondary assets in the industrial market. ULI points to ROIs above 12% as motivation for continued investment in supply chain industrial markets in non-traditional cities like Memphis, TN, Columbus, OH, and Louisville, KY.
5. Robotics and Automation in Manufacturing Impacting Industrial
Manufacturing is where robotics and automation have really taken off in industrial over the last several years. Replacing many traditional warehouse and manufacturing jobs, technology and digitization will continue to replace humans while revolutionizing the way that industrial assets are expected to be equipped. Going forward, industrial assets wired with the infrastructure for advanced technology needed to support Smart industrial machinery will remain in highest demand.