Porches and mailrooms crowded with packages have become a common sight, along with delivery trucks and vans hauling boxes of pet food, clothing, printer cartridges and other items. Even before 2020, many of us enjoyed the convenience of online shopping.

The pandemic made virtual purchasing more popular than ever: Retail e-commerce sales totaled approximately $791.7 billion in 2020, up 32.4 percent from the previous year, according to the U.S. Department of Commerce. While that amount still constituted just 14 percent of total retail sales, meaning that offline buying still dominates, there’s no doubt that e-commerce is an increasingly significant force influencing not only the retail sector but also the commercial real estate world.

E-Commerce Drives Skyrocketing Demand for Industrial Space

One notable impact of the growing e-commerce industry has been higher demand for industrial property. The largest completions today are usually regional distribution centers for e-commerce, according to a study of the top 30 national industrial markets conducted by CommercialSearch. The markets included in the study added 1.6 billion square feet of industrial space from 2012 to 2021.

Amazon alone is a significant driver of industrial real estate growth. The e-commerce behemoth began various developments during the pandemic and finished numerous warehouses ranging from 3.6 to 3.9 million square feet in 2021. Amazon was behind all five of the biggest industrial completions in 2021, CommercialSearch states.

What’s behind the meteoric rise in industrial space in Chicago? Mainly it’s build-to-suit initiatives. The second city has established itself as the manufacturing, logistical and R&D capital of the Midwest, according to CommercialSearch.

Industrial property sales have also increased, particularly in transportation hubs such as Los Angeles. Investor interest remains high: During the first two months of this year, $9.1 billion in industrial sales took place nationwide, according to a March 2022 report on industrial real estate market trends from Yardi Matrix.          

What Lies Ahead for the Industrial Real Estate Market

The pandemic has proved challenging for the world of commercial real estate due to supply chain complications and labor shortages, according to the REjournals article “Industrial Insider: A 2022 forecast for industrial real estate.”

Nate Rexroth, executive vice president of asset management for CenterPoint Properties, told REjournals that log jams at major ports in the U.S., in addition to labor shortfalls and steep fuel prices, will likely lead to high costs associated with transportation, goods and raw materials, and construction starts this year and in 2023. The article also warns of high sale prices and lease rates, annual lease escalations, briefer contingency periods for guaranteed pricing and decision-making, and steeper rates for property improvements.

In-place rents for industrial property were $6.45 per square foot on average nationwide in February 2022, up 440 basis points year-over-year, according to Yardi Matrix.

Nonetheless, the outlook is optimistic for the industrial property sector as businesses seek space for their present operations and future initiatives. The organizations fueling demand for industrial real estate include food and beverage suppliers, online retailers, packaging and consumer product providers, and medical and pharmaceutical firms.

One of the reasons behind ballooning warehouse footprints is a “plus-one” approach to facilities organizations have adopted to improve inventory control, better serve customers and cope with supply chain challenges, REjournals explains.  

“We expect that 2022 will be a banner year for industrial real estate developers, users and real estate professionals,” the article states. “In spite of rising construction costs, labor shortages and escalating sale prices and rental rates, it appears that industrial real estate will continue to flourish for the next 12-24 months at, perhaps, record levels.” 

If you’re interested in learning more about industrial real estate and industrial property for sale in Chicago and other areas across the country, the Avalon team would be happy to help you. Feel free to look at our property listings or get in touch with our staff by calling 847-506-1000 or emailing info@avalonreal.com.