Will Industrial Real Estate Stay On Top in 2022?
Industrial real estate has been among the top performers among CRE investments over the past decade. Over the past five years, industrial real estate investment trusts (REITs) have outperformed all other commercial REITs by sector, according to NAREIT data. For 2021 to date, the industrial sector has posted a total annual return of 32.38%, more than double the next leading commercial real estate sector, according to The National Council of Real Estate Investment Trustees (NCREIF).
Over that time, investors have made big bucks with the exceptional growth of this industry, leaving many investors wondering where the industry is headed and whether this industry can hold its title of front runner in 2022.
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Will industrial demand be sustained in 2022?
Supply and demand are the biggest determinants of industrial property growth potential in 2022, and currently all signs point to sustained demand well beyond 2022. The explosive growth of the industrial sector over the past decade is largely due to the rise in e-commerce. As more people shop online, the demand for industrial properties to manufacture, store and coordinate the delivery and shipping of goods increases.
From 2014 to 2020, e-commerce sales soared 220% to a staggering $ 4.28 trillion in 2020. With numbers like this, it seems like this trend cannot continue, but e-commerce sales are down than 20% of total retail sales today, so there is still enormous potential for growth.
A report published by Prologis (NYSE: PLD), one of the largest industrial REITs, provided insight into the insatiable demand the industry is seeing today. The vacancy rates have reached a record low of 3.9%, while rental growth has increased by 7.1% compared to the previous quarter as tenants compete for space. Net absorption has also hit a new high of 280 million square feet this year to date. Storage space and logistics and fulfillment centers, in particular, are experiencing high demand, but there could be new drivers that will support continued demand for all industrial properties in 2022 and beyond.
Supply chain challenges around the world are driving production back to the US This is helping to fuel a new long-term demand for industrial space alongside traditional warehouse space. Manufacturing centers serving producers here in the United States are seeing increasing demand. According to a recent report by Jones Lang LaSalle, small to medium sized commercial properties experience the greatest demand among industrial properties due to last mile facilities; Fulfillment centers, which are the final step in e-commerce delivery; and important services like two-day shipping.
Independence Real Estate Trust is one of the few industrial REITs that has a significant portion of its small and medium-sized industrial property portfolio serving this niche.
All signs point to “yes”
Deliveries and new construction of industrial space will decline in 2021, while the net absorption for industrial space has reached its highest level since records began, so an overdevelopment is not too great in the coming year. Boston paved the wave for industrial demand in 2021, followed by other cities along the east and west coasts, meaning these areas could continue to offer further opportunities in the year to come. It seems like 2022 will be another crazy year for the industrial sector, which is a great opportunity right now to invest in some of the best industrial REITs out there.
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