Here's What's Driving Industrial Growth In 2022

The continued dominance of e-commerce, coupled with shifts in inventory models and supply chain configurations, will continue to be major tailwinds for the industrial sector as we head further into 2022, according to a new analysis  from Green Street.

Shifting consumer preferences made e-commerce the name of the game amidst the pandemic, a change which bodes well for industrial since e-commerce sales require three times the amount of warehouse space as brick and mortar sales. Green Street analysts predict e-commerce will continue to grow “at a healthy clip in the foreseeable future,” buoyed by recent supply chain challenges which may incentivize retailers to turn toward “just in case” inventory models.  That, in turn, calls for more demand for warehouse space.

Potential reconfigurations of supply chain models like reshoring may also be a tailwind for the sector, Green Street said.

The headwinds?  Overbuilding, a more volatile geopolitical situation, and physical obsolescence of older, less modern space, to name a few.  Green Street analysts note that “ever-rising investor interest, combined with (normally) short construction cycles, may result in aggressive development and produce much lower rent growth than forecasted.” On the political side, ESG-related legislation could also pose a threat to warehouse owners, and if e-commerce does not enjoy the extended period of demand currently forecasted, cap rates and asset values may be impacted.

All told,  “risks impeding fundamentals appear low at first glance,” the Green Street report notes. “However, along with the usual suspects (e.g., obsolescence, overbuilding), asset values are banking on robust fundamentals for some time. Thus, only slight changes in e-commerce-driven demand and supply could spoil the optimistic party.”