Article from GlobeSt.com
Over the last few years, bolstered by an unprecedented boom in eCommerce and retail sales, the industrial sector has posted historically high demand and supply growth, and it doesn’t appear to be slowing down.
A recent report from YardiMatrix predicts that retail sales, housing starts and personal income will all likely continue to grow at a rapid clip until the middle of the decade, which will allow industrial demand to “continue unabated” for at least a few more years. The firm’s forecast calls for an annual increase in total industrial stock of between 2 and 2.3% over the next five years, netting between 350 and 370 million square feet of new space each year for a total of 1.8 billion square feet of new stock. And while more than 290 million square feet has been added to the sector over the last three years, the predicted rise in space still may not be enough to meet demand.
The growth in demand has been led primarily by an explosive uptick in eCommerce sales, which reached a quarterly record of $222 billion in the second quarter of 2021, or 13.3% of all retail sales, according to U.S. Census Bureau data. By way of comparison, online sales accounted for just 4.2% of all retail sales in the first quarter of 2010 and just 0.8% in Q1 2000. And that growth has fueled demand for high-tech logistics facilities in population hubs to allow same-day or next-day shipments and to accommodate a growing commitment of third-party logistics providers to AI and robotics fulfillment mechanisms. NAIOP data shows that more than 60% of demand for industrial space is coming from 3PLs, companies such as FedEx, UPS, DHL and others that are servicing eCommerce fulfillment.
eCommerce isn’t the only driver, though: retail sales excluding online sales are also climbing rapidly, reaching a record-high $1.44 trillion in Q2 2021. Other drivers include manufacturing, cold storage, automobiles, tires and parts, materials/construction and medical industries.
Other surprises? “While national firms get the focus of attention, smaller companies with local or regional scope also are increasing their occupancy of industrial space,” according to the report. “Examples include those that service the booming home improvement and health care supply industries and local contractors. Smaller companies are more likely to occupy multi-tenant buildings. Multi-tenant space accounts for more than 40% of industrial square footage in half of the top 30 metros ranked by amount of industrial stock.”
To reach its five-year predictions, Yardi analysts looked at five economic metrics—housing starts, retail and wholesale inventories, retail sales (excluding auto and gasoline), personal income, and weighted import and export volumes. The correlation of these metrics to industrial demand “is largely a function of how much the sector is sensitive to changes in economic growth and consumer demand, which accounts for about two-thirds of the U.S. economy,” the report states. “Ultimately the demand for physical goods translates into the space required to physically handle and store those goods as they move from the producer to the end user.”
And based on predicted changes in those metrics, the firm says industrial supply growth should remain strong through 2026. Yardi predicts 305 million square feet of space to be delivered this year, 348 million square feet next year, 360 million square feet in 2023, 366 million in 2024, 368 million square feet in 2025 and 370 million square feet in 2026. More from GlobeSt.com.
The Kansas City region is experiencing its share of industrial growth, much of which can be attributed to the booming eCommerce industry. In the past five years, the KC area successfully attracted distribution and fulfillment companies, including Walmart, Urban Outfitters, Chewy, BoxyCharm, UPS, Amazon, Melaleuca and more, pledging to create more than 10,650 jobs, invest $1.9 billion and occupy 17.8 million square feet.
And the growth isn’t expected to stop there. The KC region is on track to deliver 15 million square feet of new industrial space in 2021. The region’s central location, robust transportation network and skilled workforce are key assets driving growth in this industry for the Kansas City market.
More about eCommerce in Kansas City.