Commercial real estate is not limited to offices and retail spaces, but also includes industrial real estate. Unlike other commercial real estate investments, industrial properties are long-term investments that provide more stability. Depending on their location and use, industrial spaces can classified as –
Manufacturing – A major chunk of real estate land for industrial use is for manufacturing of goods. This would include heavy manufacturing like manufacturing of cars, production of edible goods etc. and light assembly units which would just be a unit where parts are assembled and stored and then shipped to different destinations.
Storage and distribution – These spaces are mostly warehouses where goods are stored for transfer, and include distribution and general purpose warehouses. An important aspect of the distribution warehouse is location. Being situated at commercial hubs with easy access to arterial roads and major cities is a high priority. The general purpose warehouse is mostly for storage and needs to have high security and greater area.
Flex properties – These real estate spaces are adapted to the needs of the occupants. These are generally made of 30% office space and include R&D labs, showroom spaces and data centers.
All over the world, commercial real estate is seeing a surge, especially in the industrial space thanks to growing GDP and the rise in e-commerce. Even in the US, the economy has picked up pace after a lukewarm performance at the start of 2017. According to the NAIOP Industrial Space Demand Forecast Q3 2017, “The U.S. economy appears to be back in expansion mode with GDP growing at an annualized rate of 2.6 percent in the second quarter of 2017.”
The ascension of Donald Trump had put the market in a frenzy of speculation, but his presidency is showing that growth is continuing, albeit the uncertainty. Though the brunt of de-monetization had taken its toll on mid-sized industries, the industrial space in India is again showing promise with the Make in India initiative driving growth of indigenous startups and increasing demand for online shopping.
After the financial crisis of 2007-2008, China needed to re-look at its industrial real estate sector. The traditional warehousing units in China were lacking in convenience and apt locations that are a prerequisite for the warehousing sector. Also, local governments were more geared towards selling land for office and retail spaces as they presented higher returns in terms of taxes and employment returns. But the current rise of e-commerce, increase in domestic consumption and sudden demand by consumers has caught the country off guard. With the industry being under-supplied, industrial real estate has seen a huge market growth in China. Investors see huge market potential with increased demand and a very low supply.
Market factors influencing industrial real estate both globally and in the regional markets include:
The quick, unprecedented growth of e-commerce has led to a need for greater logistic facilities and organized, sophisticated networks for distribution and storage of goods. Be it the US, China or India, increased consumer need has led to greater demand for technologically advanced and commercially sustainable industrial real estate properties.
Smaller distribution centers
The trend of e-commerce companies and other logistics partners trying to intermingle networks for better efficiency and faster distribution, is picking up pace, with the need for warehousing facilities that are compact and location-specific This is likely to further spur the industrial real estate growth.
The U.S. President
With President Donald Trump gearing towards tax, transportation and trade reforms, the US industrial market will see a surge in warehousing and storage space needs as the new trade and tax agreement will pave the way for upgrading infrastructure like roads, bridges etc…
These recent developments further add to the lucrativeness of industrial real estate, which traditionally has been viewed as a low-risk enterprise with good returns. Advent of e-commerce, along with technology and automation, has only gone on to add to its attractiveness. Hence, the rising growth in industrial real estate comes as no surprise.