Watch this space: Industrial boom continues into late 2021, and beyond

We’ve all seen how the Covid-19 pandemic gave the industrial sector the shove it needed to go from well-poised to interstellar. Now research from the Commercial Real Estate Development Association (NAOIP) suggests there is no slowing down for commercial real estate’s (CRE) newest darling sector.

The NAIOP’s Industrial Space Demand Forecast for Q3 2021 shows that “sustained growth in e-commerce [and] demand for industrial real estate continues to outpace supply”. This, they say, puts the sector in a state of net absorption that will continue throughout the year and into 2022.

Digging into the numbers

The authors of the report are Hany Guirguis, PhD, Manhattan College and Michael J. Seiler, DBA, College of William & Mary. They write that “the demand for industrial real estate still outpaces supply” even with “nearly 100 million new square feet delivered nationally since the beginning of the year, 450 million square feet currently under construction and another 450 million planned”.

Their data then boils down to net absorption of some 162.6 million SF in the second half of the year, and they state that they’ve “returned to their pre-pandemic confidence levels”.

Triangulating more data
The demand has of course been driven primarily by the boom in e-commerce. GlobeSt.com reports that e-commerce sales hit “a quarterly record of $222 billion in the second quarter of this year”, accounting for 13.3% of all retail sales. But there are contributing factors, such as growth in cold storage, materials and construction, manufacturing and medical industries.

With the combination of factors, CRE data analysts such as YardiMatrix are predicting the growth to stay buoyant through 2026. Yardi’s predictions include delivery of 348 million SF next year, 360 million SF in 2023, and up to 370 million SF in 2026.

New growth
There are other blooming products and industry categories that will only increase this demand. The cannabis processing industry is hungry for space in deregulated regions and in countries with widespread legalization like Canada and Latin America. Finally, there are superlative predictions for the industrial square-footage needs of the commercial space industry too.

No wonder, NAIOP CEO Thomas J. Bisacquino calls industrial “a bright spot in the CRE industry”.

Health check: the state of hospitality and hotel CRE

An economy reconfigured

It’s been a rollercoaster 18 months for everyone including market analysts who have had to provide insight and predictions on an unprecedented event, as the world bounded through recession, recovery, and reconfiguration. As it stands now, the US recovery has been swift, if uneven.

GlobeSt’s latest piece on this makes the argument for understanding this recession in different terms from so-called traditional ones, writing: “The COVID-19 recession was not caused by monetary factors, rather it has been a disruption akin to an unanticipated natural disaster which typically temporarily interrupts economic activity while leaving intact the underlying demand and supply of goods and services.”

Outlook

The above forms part of their outlook reporting for hotel sales, and as has been well-established hotels, tourism, and hospitality were dramatically affected during the peak of the pandemic travel-bans and “shelter at home” orders.

GlobeSt points to some encouraging signs, including the volume of startup businesses launching, low levels of household debt-service burdens (in relation to net income), rising house prices, increases in personal savings, and the Dow Jones Industrial Averaging gaining some 18% compared to Feb 2020 (a pre-pandemic peak for the index). Altogether, these are positive signs that the American consumer may well have additional discretionary spending in the coming months, and the tourism space could be on the receiving end.

Corporate travel is expected to increase in the second half of the year, on top of the increases already evidenced in daytrippers and weekend travel. As schools reopen, they are anticipating patterns to shift from leisure to work trips.

Early 2021 winners

The Wall Street Journal reported earlier this year that real estate investment trusts (REITs) and companies with holdings in retail and hotels “mounted a first-quarter comeback”.

“Real-estate investment trusts overall rose 9% during the three months, beating the S&P 500’s 6% gain,” according to data-analytics firm Green Street. Fueling the REIT rally was an 18% rise in the shares of lodging owners and a 32% gain by mall owners.

Creative strategies
Additionally, according to CNBC, distressed hotels were in demand from buyers looking for possible redevelopment and conversion projects, and other creative solutions to the low supply of affordable housing. “So-called Class C housing stock is now 96% occupied nationally and 99% occupied in the Midwest, according to RealPage, a property management software company,” CNBC writes.

And for hotels with no intentions of conversion – the vast majority – the pandemic also provided a kind of reset that allows for model innovation. “Similar to the airline’s ala carte approach, the hotel industry is attempting to move guests toward an opt-in choice for various services, such as daily room cleaning,” reports GlobeSt.

Counting the deals
This article provides a deep dive into specific deals and statistics from hotel sales and performance in 2021 so far and is a recommended read for those CRE professionals servicing the submarket.

It will also make for interesting reading from a capital markets perspective as it details funding activity: “As the U.S. hotel industry continues to emerge from the carnage induced by the global pandemic, an abundance of capital is beginning to fuel increasing activity with lodging sector mergers, acquisitions, and spinoffs,” they wrote.