To say the supply chain is in a state of upheaval would be a severe understatement. Retailers and distributors are struggling to keep shelves stocked. Transportation bottlenecks continue to cause delivery delays. Many manufacturers have been deemed non-essential and forced to shut down, while others have shifted production to create personal protective equipment. Food suppliers are experiencing financial strain as they try to shift production away from closed restaurants and toward consumer needs. E-commerce orders have skyrocketed, with even giants like Amazon and Walmart failing to keep essential goods in stock.
With these and other factors in play across the supply chain, the short-term impact of the novel coronavirus on the industrial real estate sector has been challenging and unpredictable. Just like every other industry, industrial real estate has taken some unexpected hits. However, long-term projections for industrial real estate suggest the sector may recover quicker than most. “Even amidst these uncertain times, the commercial real estate, logistics, and 3PL sectors have demonstrated incredible stability,” says Frank P. Crivello, Chairman & Founder of Phoenix Investors, Phoenix Logistics’ affiliate. This blog will discuss some of the short- and long-term effects of COVID-19 on U.S. industrial real estate.
Short-Term Consequences of Coronavirus
The coronavirus pandemic has been a mixed bag for commercial real estate so far. Here are some of the most notable short-term trends:
- On-demand warehousing. On-demand warehousing has surged as logistics service providers are hired to rapidly open new facilities that can support massive demand increases or accommodate increased storage needs. Warehousing providers are getting creative with non-traditional warehousing space and other solutions to accommodate these needs.
- Short-term leasing. Industrial tenants don’t just want more space on-demand, they want it only for the short-term. A myriad of retailers and manufacturers are supplementing their existing warehouse space for a variety of reasons, such as storing incoming shipments of raw materials or consumer goods that continue to arrive even after their facilities have been shut down.
- Rent and mortgage troubles. Many commercial businesses have shuttered in compliance with shelter-in-place orders, but this means they aren’t bringing in any money. Smaller industrial shops and large retail chains alike are struggling to pay their rent as their income streams are cut off. Consequently, some building owners cannot pay their mortgages. How this will play out between tenants, landlords, and lenders remains to be seen. Of note, small industrial businesses struggling with rent or other expenses can seek emergency assistance from the Small Business Administration here.
Long-Term Predictions for U.S. Industrial Real State After COVID-19
Projecting the industrial real estate impact of coronavirus further out is more challenging. There are some trends that seem likely, however, including:
- E-commerce growth. It’s likely that e-commerce will retain much of the growth it has experienced during the pandemic as consumers fall into new habits. Grocery delivery, in particular, will undoubtedly expand in capability and capacity in response to the challenges it has faced during the pandemic. Growth in e-commerce markets will be a primary driver for distribution and fulfillment space in a post-pandemic world.
- Construction delays. While many industrial operations have been deemed essential and remain open, construction activities have been deemed non-essential on in some states. Original estimates suggested that supply would finally outpace demand in 2020 by 20–30 million square feet, but this number will no doubt be negatively impacted by furloughed building activities.
- Higher inventory levels. Retailers and manufacturers won’t want to get caught unawares again by the next pandemic or natural disaster. Most will likely begin carrying more goods and materials on hand while also insisting that their primary suppliers do as well. This will drive significant demand increases for warehousing and should fuel demand in more affordable secondary markets.
Industrial Real Estate From Phoenix Logistics & Phoenix Investors
Phoenix Logistics and Phoenix Investors have access to more than 29 million square feet of industrial property across 23 states. We are working hard to meet the short-term needs of new and existing customers during this pandemic while continuously preparing for what comes next. We have emergency warehouse capacity available now to help you meet the challenges presented by COVID-19.
As an affiliate of the real estate firm Phoenix Investors of Milwaukee, WI, Phoenix Logistics has unique and preferential access to an expansive portfolio. Phoenix Investors’ Senior Management includes Frank P. Crivello as Chairman & Founder; David Marks as President & CEO; and Anthony Crivello as Executive Vice President. Robert Kriewaldt serves as Phoenix Logistics’ Senior Vice President.