It's Not All Roses. Industrial Real Estate Is Facing Myriad Challenges

Timothy Savage is very bullish on industrial real estate, but he also sees the myriad of challenges especially during the current health epidemic.

Savage, a clinical assistant professor at Schack Institute of Real Estate, New York University, co-authored the NAIOP Industrial Space Demand Forecast report on industrial real estate. His co-author was Hany Guirguis, a professor of economics and finance at Manhattan College.

In an interview with GlobeSt.com, Savage said there are several challenges facing industrial real estate today; many of them are COVID-19 related.

“The primary challenge is having enough distribution and fulfillment centers close to urban clusters. That is a big challenge,” Savage said. “Fixing the challenge will involve a lot of interactions with local political authorities. You need politicians on board, because of the space needed to be rezoned. I’m not very optimistic here. If you take New York City, for example, their policies on such issues ranges from bad to worse.”

COVID-related challenges, Savage said, are vast.

“For industrial, in particular, I think the pandemic has accelerated the movement away from brick and mortar to e-commerce,” Savage said, “That tends to benefit industrial space.”

“To round out the whole discussion, it’s a big challenge to distribute goods on the same day or the next day and the fact is that the levels of return via e-commerce is much higher than traditional brick and mortar,” Savage said. “Getting goods distributed to the consumer is a challenge, but, those consumers return a much higher share of the goods they purchase online.”

According to the report Savage co-authored, industrial real estate has outperformed other commercial property types in 2020 due, in large part, to a surge in e-commerce.

Savage and the report said net absorption is forecast to decline to negative 141 million square feet in the third quarter. Net absorption, he said, is the newly leased space that was not leased in the prior quarter.

While 2020 might be somewhat of a bust, Savage said bright times are ahead.

“I am feeling positive about 2021. Essentially, the economy will recover,” Savage said. “We will recover from COVID.”

In the report, Thomas Bisacquino, president and CEO of the Washington, D.C.-based NAIOP, said, “E-commerce will drive long-term growth in industrial real estate. But, it is only one piece of the puzzle. COVID is a natural disaster that significantly affected consumer demand and supply chains. When this crisis ends, we anticipate that the rebound will be faster than in prior economic slowdowns.”

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