Look Who Stands to Benefit From Supply Chain Disruptions

Construction delays are expected to intensify as supply chain issues continue to mount, according to a new analysis from Moody’s Analytics, but the shortfalls could be a boon to certain types of commercial real estate.

In the short term, challenges in production processes are placing negative pressure on space demand for manufacturing spaces in places like the Great Lakes region and automotive factories across the Southeast, according to Moody’s economists Thomas LaSalvia, Kevin Fagan, and Victor Calanog.

But “the outlook changes when we look at potential long-term impacts on space demand,” they say. “The industrial sector has really benefited from the shift to online commerce, brought about by the pandemic. If challenges to the supply chain continue to put pressure on the intermodal transport system, that also provides an incentive for logistics companies to build out even more warehouse space for stocking needs.”

If supply chain disruptions continue, a “just-in-case” approach may become more popular for brands, which would then result in increased demand for warehouse space. 

According to a recent Colliers report, core industrial markets like the Inland Empire, Dallas-Fort Worth, Atlanta, Chicago, Northern-Central New Jersey, Southern New Jersey-Eastern Pennsylvania and Toronto are the destinations of choice for many occupiers. The firm noted that “the supply chain disruptions, partly induced by the global pandemic of the past 18 months, sparked immense change for occupiers of bulk product throughout North America,” adding that “the rapid growth of e-commerce was the bright spot throughout the economic upheaval for the industrial sector.”

Moody’s acknowledges that continued supply chain disruptions will be tough for global logistics firms and multinational goods producers to stomach and could also result in further reductions to office space demands for those companies in cities like Chicago, historically a major regional cluster for the sector.

In addition, “inflation-induced economic slowdown that causes interest rates to rise faster than expected could inhibit investments in the commercial real estate market,” the Moody’s team notes.

Apartments projects have also been taking an additional three months to complete this year in comparison with historical data, according to Moody’s, but while the delays have some obvious negative impacts on the stakeholders of these specific projects,” economists at the firm estimate they “could help prop up market-specific CRE performance in the short term as slightly lower supply growth numbers will keep the market tight.”

In terms of long-term shifts, they predict that calculations for warehouse and distribution locations may change to reduce “intermediate steps” in the production and distribution processes. This will serve as a hedge against long-lasting supply chain issues and can also serve to blunt the effects of rising transportation costs. Older retail spaces near population centers may also be increasingly repurposed into warehouse space.