Could North America's Industrial Property Market Be Recession Proof?

The industrial property market in North America was going strong before the novel coronavirus COVID-19 pandemic disrupted the global economy—and the sector is still chugging along with no signs of slowing. 

Before the coronarvius outbreak, the industrial market in the U.S. and Canada was healthier than it was ahead of the previous two financial crises, according to a report from Cushman & Wakefield.

The Chicago-based global commercial real estate services firm notes in the report that the pre-COVID industrial property vacancy rate in the U.S. and Canada was 4.9% and 2.8%, respectively. The overall vacancy rate in North America was 4.9%. 

Comparatively, as North America entered the dot-com downturn in the early 2000s and the subsequent global financial crisis, the overall vacancy rate for the industrial market was 7.3% and 7.9%, respectively. 

“Although it is too early to accurately predict the pace of recovery, the US industrial market is well positioned to weather the current disruption,” states the report. The study also shows that demand for industrial property has been growing by 260,000 to 310,000 square feet annually. 

“The industrial property segment has been among the top performing asset classes in terms of net occupancy growth, rent growth, and capital appreciation over the past few years,” the report states.

The booming e-commerce market continues to drive much of the demand for industrial space, insulating the sector from the economic downturn. A recent study from Prologis predicted that e-commerce inventory would grow by 5-10%, which equates to an additional need for 285,000 to 570,000 square feet of warehouse and logistics operations space in the U.S.

Before the pandemic, Prologis had forecast e-commerce penetration to be about 17% this year. The firm has since revised the estimate up to 20%. Meanwhile, the REIT’s research department found in a June study that e-commerce penetration in the U.S. spiked to more than 25% in April, up from 15% at year-end 2019. 

Consumer spending, a primary driver of industrial market growth, has been on the rise in recent months. But the Cushman & Wakefield report cautions that spending could suddenly cool as a result of coronavirus flare-ups, job losses or uncertainty about the next round of COVID-19 financial relief.

The report also notes that while the threat of oversupply is low for the industrial market, “it does present a risk for some individual markets with large speculative pipelines.” 

Still, the study concludes that while the “North American industrial market faces a bumpy 2020, structural trends favor increased demand and strong performance in both the near- and long-term.”

Read more: 

E-Commerce Driving Industrial Growth Even Faster Due to Pandemic