Supply Chain Disruptions Propel Industrial Sector

E-Commerce is often cited as a major driver of the industrial boom and indeed it is a significant contributor. However there are other trends pushing this space, such as a desire among companies to tighten logistics strategies as advanced manufacturing continues its return to the United States, driving new space needs.

A new report from Marcus & Millichap notes that ongoing supply chain disruptions may push more firms to bring production back stateside, adding that “advanced manufacturing is already making a prominent return to the US in the form of new semiconductor plants situated across the country, as well as electric vehicle production,” and adding that support businesses will then fill space nearby.

Airports will also assume an even more prominent role in logistics this year, as consumer expectations of quick delivery times pushes up against “prodigious backlogs” at major cargo terminals.

“In order to transport some goods more quickly, companies have turned to airfreight,” the report notes. “The volume of cargo transported by air has increased throughout the health crisis, underscoring demand for distribution and warehouse space at inland airport hubs.”

Marcus & Millichap also notes that production and transport capacity remain at odds, with production output back within pre-pandemic levels as the amount of tonnage being transported by truck lags amid driver shortages. 

“If this dynamic persists, it may solidify businesses’ plans to shore up inventories,” the report notes.

Against that backdrop, interest for industrial construction lending is booming, with banks standing out as the leading financiers for such loans. The report also notes that “favorable rent-growth prospects in the sector have also attracted nontraditional lenders, including investor-driven funds, to construction financing, especially for properties connected to the e-commerce process.”

However, Russia’s invasion of Ukraine, which could interfere with the Fed’s ability to raise rates and increase inflationary pressures, could be headwinds for the industrial sector.

“If the Fed is limited in its ability to fight inflation this year, or the federal government has to engage in new stimulus, the value of the dollar could slide. This could potentially negatively impact import volumes, as the cost of foreign goods increases,” the report notes. “As much of the US supply chain is geared toward imports, this scenario could affect some property fundamentals.”