The exponential growth in e-commerce sales is a "misleading signal" for the industrial market, says Real Capital Analytics' Jim Costello–and savvy investors should watch out for the inevitable slowdown. 

"The thing about exponential trends is that they only match into the future for some time, then everything starts to fall apart," Costello writes in a recent post.  "Before the pandemic, that sort of breakdown in the pattern of growth for e-commerce activity was already underway… Fundamentally, e-commerce growth should slow at some point to a pace more like that set by disposable personal income as it starts to capture a greater share of total consumer spending. The uncertainty here is exactly when the slowing begins."

From 2003 to 2016—before e-commerce drove nearly every facet of consumer purchasing behavior—industrial deal volume represented just 15% of investment in the so-called "big four" (office, retail, apartment, and industrial). During that period, Costello maintains, "industrial sector was long viewed as sleepy and slow-moving, and few investors saw exciting opportunities within such a low volatility sector."  In 2003, less than 2% of all consumer purchasing happened online, but that figure began growing by about 50 basis points per year until 2014, when it began to pick up major steam.