2022 Industrial Warehouse Market Outlook: Part 1 of 3 Predictions

A massive chase for space could portray the industrial market and what we will see to come since the onset of the pandemic. During 2021, e-commerce, retail sales, and the difficulties that came with the supply chain issues fueled the demand and need for space in the industrial sector, mainly for warehouse and distribution centers.

And the demand keeps seeming to outpace the supply. According to Cushman & Wakefield research, The U.S. dedicated about 507.3 million square feet of space in 2021. Meanwhile, the national emptiness rate stood at 4.1 percent at the end of the third quarter, down 110 basis points year-over-year.

Either way, over the last decade, industrial real estate has outperformed other (CRE) investments. Industrial real estate investment trusts (REITs) have outperformed all other commercial REITs by sector over the last five years, according to NAREIT data. According to The National Council of Real Estate Investment Fiduciaries (NCREIF), the industrial sector earned an annual total return of 32.38 percent in 2021, more than double the next top CRE sector.

The main predictor of industrial real estate growth potential in 2022 is supply and demand, and all signals point to continued demand well beyond that year. The rise of e-commerce is partly responsible for the manufacturing sector’s spectacular expansion during the last decade. As more people purchase online, industrial assets are in more demand to manufacture, store, and organize goods delivery and shipment.

 E-commerce sales increased by 220 percent from 2014 to 2020, reaching a record $4.28 trillion. With figures like those, it may not appear that this trend can be sustained, but e-commerce sales account for less than 20% of total retail sales today, indicating that there is still a lot of room for growth.

Deliveries and new construction of industrial space were down in 2021, but net absorption for industrial space is at an all-time high, indicating that overdevelopment is unlikely in the future year. 2022 appears to be shaping up to be another crazy year for the industrial sector, making now an excellent time to buy into some of the best industrial REITs.

Next year will be just as tumultuous as 2021. E-commerce will continue to drive growth, but demand for manufacturing facilities will rise as well, resulting in a prolonged shortage of industrial sites in all key markets, as the sorts of facilities required against those available are still out of balance. Occupants will also continue to seek out Class A space in prime locations. Industrial is in the green!