The industrial real estate sector experienced a wild ride over the last few years. A global pandemic created overwhelming demand for warehouses, followed by waning demand as the market normalized in a post-pandemic world. When the pandemic highlighted the fragility of the global supply chain, many American businesses also put reshoring plans into motion, some of which started to come to fruition in 2023. Meanwhile, record inflation and skyrocketing interest rates have made financing deals harder for prospective tenants and buyers.
As 2023 comes to a close, industrial real estate stakeholders are understandably anxious about what the next year will bring. Here are some trends and developments to monitor in 2024.
5 Factors That Will Impact Industrial Real Estate in 2024
Though predicting what will happen to the industrial real estate market is tricky, early indicators suggest a mix of continued pain points and recovery. These factors will influence the direction of the market in 2024:
Interest Rates and Financing
Commercial real estate loan defaults started to tick upward toward the end of 2023, leaving lenders nervous about loans for speculative projects and new purchases—even in the stronger-performing verticals like industrial. The Federal Reserve should start cutting interest rates sometime in 2024, but when exactly that may happen is still up in the air. Once they do, banks should theoretically loosen their purse strings.
Supply Chain Restructuring
Reshoring takes time—usually years—to implement. Companies that started regionalizing their supply chains in 2020 and 2021 started influencing demand for factory real estate in 2023. As the pandemic continued, even more companies pursued onshoring as a viable supply chain resilience strategy. It stands to reason that 2024 should see increased demand for factory and warehouse space as more businesses bring their restructuring efforts closer to completion.
A Faster Last Mile
Despite early concerns about a lackadaisical peak season, consumers showed up to spend for the 2023 holiday peak season. The willingness of shoppers to buy goods online has also driven consumer demand for ultrafast delivery capabilities. As a result, companies and third-party logistics (3PL) providers will need to establish fulfillment centers near population centers to meet consumer demand for same-day and next-day delivery. Though warehouse demand won’t reach 2022 levels, these factors should still create steady demand for industrial properties in 2024.
In 2023, the United States experienced 25 severe weather or climate disaster events with resulting losses exceeding $1 billion. Businesses have begun to take note of how these events impact their supply chains and operations, and so has the government. A proposed rule would also require publicly traded companies to report data about their sustainability efforts. These factors will create a domino effect that reaches the industrial real estate market as buyers and tenants demand things like solar panels, EV chargers, and sustainable building materials for their warehouses, factories, and storage yards.
Ideally, the ups and downs of the last couple of years should be behind us. Most analysts expect continued market stabilization for industrial real estate in 2024. CBRE predicts that net absorption should be on par with 2023 levels, and annual leasing activity should remain around 750 million square feet.
Industrial Real Estate Remains Strong
If you read various business media, you’ll find that some 2024 predictions are all gloom and doom while others provide a more positive outlook. The important thing to remember is that the industrial real estate market continues to outperform most other sectors of commercial real estate. Rising e-commerce sales and reshoring continue to create demand, which will eventually absorb the oversupply created by new deliveries in 2023 and early 2024.
In all likelihood, 2024 will still present obstacles to overcome. However, the long-term outlook for the sector suggests that industrial real estate will remain a top performer among commercial real estate sectors again in the year ahead.
About Phoenix Investors
Founded by Frank P. Crivello in 1994, Phoenix Investors and its affiliates (collectively “Phoenix”) are a leader in the acquisition, development, renovation, and repositioning of industrial facilities throughout the United States. Utilizing a disciplined investment approach and successful partnerships with institutional capital sources, corporations and public stakeholders, Phoenix has developed a proven track record of generating superior risk adjusted returns, while providing cost-efficient lease rates for its growing portfolio of national tenants. Its efforts inspire and drive the transformation and reinvigoration of the economic engines in the communities it serves. Phoenix continues to be defined by thoughtful relationships, sophisticated investment tools, cost efficient solutions, and a reputation for success.