Industrial Spaces in High Demand, Leads Post-COVID Recovery

The industrial sector is expected to weather the economic ramifications of the COVID-19 pandemic better than other areas of the economy, according to an Industrial Sector Outlook report by Colliers.

The lessened impact to the industrial properties sector is thought to be due to the high demand for e-commerce projects and groceries. The need for industrial space stays high, with 329 million square feet of industrial project under construction at the end of this quarter.

Companies such as Amazon fared well as e-commerce growth accelerated. Amazon occupied more than 6 million square feet of industrial space in 2020, with additional plans to add capacity.

Overall, the industrial properties sector fared well this quarter, with occupancy gains totally 63.5 million square feet, up from 32.5 million square feet at this time last year. The majority of new development are in the southern U.S. states, with 36.4 million square feet of new construction and almost 147 million square feet under construction. In the first quarter of 2020, the average asking rents per square foot per year was $6.18 for warehouse and distribution centers, $6.41 for manufacturing spaces, and $12.66 for flex spaces.

Despite a steady rate of vacancy fluctuating between 4.8 percent and 5.2 percent since 2017, the vacancy rate was increasing from the end of 2019 through the current quarter and is expected to increase through 2021.

The US economy is expected to recover, with a positive second quarter and a gradual recovery from the fourth quarter in 2020 to the first quarter in 2021. Current GDP projections predict a 5 to 7 percent decline this year with a graduate recovery next year. Other factors companies will need to consider as employees return to work include the logistics of implementing social distancing guidelines, staggered shifts and hygiene protocols.

There is expected to be an increased demand for industrial properties because the growth in e-commerce has led to increased need to store large amounts of stock inventory and the use of third-party logistics providers. Third-party logistics providers were the top occupiers for bulk industrial spaces, signing 24.7 percent of deals.

This outlook may be disrupted if there is a second wave of the pandemic in late 2020. The first wave of the pandemic brought a decline of a 7.3 percent month over month drop in consumer consumption, and 30.3 million jobless claims filed in April.