E-Commerce % of Total Retail Sales

Sources: U.S. Census Bureau, November 2022 | Projections from CBRE EA: Pandemic Accelerates E-Commerce Adoption Implications for Industrial and Retail. The percentages presented for future periods are projections and there is no guarantee that these projections will accurately reflect future performance. E-commerce sales are sales of goods and services where the buyer places an order, or the price and terms of the sale are negotiated over the Internet, mobile device (M-commerce), extranet, Electronic Data Interchange (EDI) network, electronic mail, or other comparable online system. Payment may or may not be made online. Online travel services, financial brokers and dealers, and ticket sales agencies are not classified as retail and are not included in either the total retail or retail e-commerce sales estimates. Projections are for 2030 and 2040 and not annual, each year estimated based on 2030 and 2040 projection.

E-commerce growth directly increases the demand for industrial space. The graphic below highlights that e-commerce alone will result in demand for an additional 465 million square feet of industrial space through 2027.

Source: Based on near term E-commerce projections from Green Street Industrial Outlook, January 2023. $1 billion of e-commerce sales requires approximately 1.25 million square feet of industrial space.

Worldwide shocks to the supply chain caused by the recent Pandemic have forced companies to focus on supply chain resiliency and to shift to a “just-in-case” inventory model, carrying extra inventory, which requires increased warehouse capacity. As shown below, at the height of the Pandemic, retailers inventory plunged to all-time lows, causing the realization for merchants to keep more inventory on hand.

Retailer Inventory-to-Sales Ratio

Source: Green Street 2023 Industrial Outlook. Green Street Warehouse Inventory Index adjusts for various nuances around product size and proclivity to be stored in warehouses (e.g., auto inventory is stored on dealership lots, not warehouses) to provide a more accurate reading of goods in logistics facilities.

The demand for industrial space has never been more robust. The sector has seen 13 consecutive years of positive net absorption, even with a record 661 million square feet under construction as of Q3 2022. (source: CBRE 2023 Real Estate Market Outlook). As shown below, the sector has exhibited nine consecutive quarters of above long-term average net absorption.

Quarterly Net Absorption (MSF) | 2013-2022

Source: CBRE Q4 2022 U.S. Logistics and Industrial Figures

As expected, strong demand has propelled industrial fundamentals to historically high asking rental rates and occupancy rates. As shown below, asking rent is at an all-time high, while occupancy remains extremely tight.

Even as demand for industrial space somewhat eases, the imbalance persists due to scarcity of land and supply. As shown below, during 2022, the availability rate hit a 5-year low, caused by net absorption significantly outpacing construction.

Source: CBRE, Q4 2022 Industrial Figures

According to Prologis, the nation’s largest owner of industrial space, this shortfall is expected to continue, with 2023 projected to have the lowest development starts in the past seven years, largely driven by a rapid rise in the cost of capital.

Development Starts, ProLogis U.S. Markets

Source: Prologis Research, Seven Supply Chain Predictions for 2023

Further, a decline of this magnitude is expected to create a shortage of space in 2024, further bolstering future rent growth.

Bluerock believes the industrial sector will continue to provide positive returns into the future due to the growth of e-commerce, structural shifts in the supply chain, and unprecedented demand for industrial space with limited supply.