The 2020 Mid-Year Economic Update_long

E-Commerce Fueling Industrial Real Estate Demand

Need for distribution space grows as companies look to add fulfillment centers.

Rising demand for industrial real estate will mean increased rental rates in 2015 as more distributors look to establish e-commerce fulfillment centers, according a forecast released earlier this month by the commercial real estate development association NAIOP.

The economy's acceleration in 2014 sparked a growing demand for industrial space, and the sector could reach a record 242 million square feet of net absorption in 2015, according to Dr. Hany Guirguis, Manhattan College, and Dr. Joshua Harris, University of Central Florida, co-authors of the NAIOP Industrial Space Demand Forecast.

Industrial net absorption was 224 million square feet in 2014 – an 8 percent increase over the previous year – and quarterly net absorption is expected to average 60.5 million square feet in 2015. Likewise, industrial asking rental rates should rise this year after increasing steadily in each quarter of 2014.

Distribution is at the center of this growth, as companies look to build or lease warehouses near their customers to increase delivery speed for online sales.

“A great deal of the demand for industrial space will come from firms that produce and distribute consumer goods, and that’s why commercial real estate is seeing such a boom in e-commerce fulfillment and distribution facilities,” said Thomas Bisacquino, NAIOP president and CEO. “Another leading sector is automotive, which has grown considerably (auto sales are up 6 percent in 2014) and is strongly recovering from the recession.”

But according to the report, the slumping price of oil means that "one gloomy sector of industrial demand will likely be oil and gas producers and their servicers, contractors and suppliers."

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