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What Does the Industrial Real Estate Sector Look Like After COVID-19?

Posted by RealNex on Jun 15, 2020 8:00:00 AM

It’s no secret that industrial real estate has been the golden child sector of commercial real estate, as of late. Industrial properties have consistently been among the top-performing sectors, but unfortunately, COVID-19 could cause returns to take a significant hit. 

In 2019, warehouses throughout the United States earned nearly 13.5 percent, the only sector to deliver double-digit returns in the NCREIF Property index, according to NCREIF data. To put this in perspective, the second-highest performing sector was office space, which came in at 6.6 percent. 

The impact of COVID-19 on commercial real estate 

Hotels have been among the hardest hit commercial properties, but now the commercial real estate industry is beginning to see “chinks in the armor” of strong industrial properties, especially those located in port markets. A combination of factors, including increased rents, reduced cargo from China, and more are causing warehouse tenants to question whether they really need more warehouse space — and this is beginning to impact the price investors are willing to pay for warehouse space. 

Investors should expect to see “less than ideal” outcomes for nearly every sector as a result of the coronavirus, insiders warn. The hospitality sector is likely to be the hardest hit in the near future, with industrial real estate potentially posting lower than average returns over the next 6 months to a year. 

Fortunately, there is a saving grace for the industrial sector: e-commerce. Compared to 2019, the e-commerce order volume has increased by a full 50 percent. This doesn’t mean that the model is without fault, however. This sudden and somewhat unexpected surge in orders, combined with supply chains that have been disrupted everywhere, has led to an increase in shipping delays, frustrating some buyers. 

Retailers, on average, are taking almost 2 days longer to fulfill orders. And larger products, such as furniture or appliances, have even longer delays. In fact, the fulfillment time for these types of large orders has more than doubled over the past 6 weeks. Businesses that previously held a large inventory on hand, or that diversified their manufacturing processes, are finding themselves better positioned for success during this time, and should hopefully recover faster in the coming months. 

New trends in e-commerce

You can also expect to see several new trends in e-commerce, thanks to the coronavirus and the number of changes that have come along as a result. COVID-19 has defined a new niche category of consumer goods, called “new essentials.” These are products that help consumers be more comfortable under the strict shelter in place orders that are in effect in most states. This category includes office supplies, home fitness equipment, housewares, home improvement supplies, toys, hobby-related supplies, and more. These goods currently account for nearly 40 percent of all consumer spending. 

You can also expect to see an increase in contactless payment solutions, another result of the shelter in place orders. Companies that have contingency plans in place to handle high volumes of online transactions (think: Cyber Monday shopping) are coming out on top, citing their payment platforms as being vital to their success in the increased payment volume. 

In commercial real estate, you’re often only as good as the technology you use. With RealNex, you can win more business and close more deals — faster. We offer market-leading CRM, transaction management, analytics, presentations, and marketing. Schedule a demo or contact us to get started today. 

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