The Peninsula Industrial Pros

Your Commercial Real Estate Source in the San Francisco Bay Area

Big Demand Forecast for Industrial, Logistics Space

Although CushWake is a competitor, I posted this because it’s an interesting take on where industrial is headed.  The good news for the Bay Area market is that we are so heavily entrenched in technology, that the drivers for both benefit the local economy and industrial real estate investors in particular.  Although Class A Industrial space is very limited in the Bay Area, there have been recent trends showing a variety of reconstruction projects to address these demands for higher clear height, better staging, and higher sprinkler ratings.  

Unprecedented growth in technology and demand will force wholesale changes in the retail, industrial and logistics real estate sectors, according to a new “white paper” from Cushman & Wakefield.

As the global economy recovers, pent up demand “will result in significant growth in global trade,” the consultancy reports. A return to a growth rate of 9.5 percent  a year would result in the volume of global trade reaching $45 trillion by 2021, compared to just $6.5 trillion in 2001 when China joined the World Trade Organization.

A few global factoids offered by Cushman & Wakefield:

  • World exports surged 20% in 2010 and 2011 even as economies struggled to recover?
  • Up to 25% of all retail sales in the U.S. and U.K. will take place online by 2020?
  • Intra-Asia trade has already surpassed exports to western economies?
  • Demand for industrial space in Vancouver increased 83% in 2H12 vs. 1H12?
  • Shanghai’s logistics and warehousing occupancy is greater than 90%?

To handle the fast-growing needs for online shopping, mobile technology and changes in consumer spending patterns will demand “flexibility and diversity, collaboration, automation, technology – and a keen balance of scale and scope, most likely through consolidation and vertical integration.”

“Seismic changes in retail requirements are putting new pressures on shippers who are expanding to developing economies while concurrently struggling to adapt to the challenges of high-demand retailing in increasingly dense cities,” said John Morris, Cushman & Wakefield’s industrial services lead for the Americas.

An excerpt from the report:

  • The U.S. is facing a potential shortage of class A Industrial space. Functional obsolescence in premium markets is spurring more redevelopment and retrofitting of existing facilities, while Industrial real estate demand in the southeastern U.S. has been propelled by relatively more affordable land. Greater transportation efficiency has spurred the development of intermodal facilities that serve as transfer points as well as logistics hubs and reshoring is likely to gain traction as labor costs become more balanced globally.
  • In Europe, activity has been mixed, with transactions taking longer to conclude due to the cautious outlook of many occupiers. However, locations such as Moscow, Warsaw and Berlin have recently seen encouraging levels of activity. Cost-reduction strategies have put the spotlight on prime quality space which has continued to decline while secondary space is becoming increasingly obsolete. Although this has placed marginal pressure on rents in some areas, it has also given rise to the re-emergence of build-to-suit developments, particularly space that requires a high degree of automation and technology.
  • Brazil and China have become dominant players on the global scene due to strong economic growth coupled with rising incomes. The real estate landscape in Brazil shows tremendous potential with industrial demand at its peak on the Rio-Sao Paulo axis. However, challenges remain such as poor infrastructure and a scarcity of suitable sites. In key Chinese hubs such as Shanghai and Beijing, traditional manufacturing assets are increasingly being replaced by value-added, high-tech industrial space. With a growing scarcity of land, companies are likely to explore buying existing industrial properties and renovating or rebuilding them to meet new requirements and higher standards.
  • “Costs in China and the growing integration of intra-Asia trade channels supported by a budding middle class point towards more demand for industrial space across most regional hubs,” according to Sigrid Zialcita, regional head of Asia Pacific research services for Cushman & Wakefield. In Shanghai, demand has once again exceeded supply leading to annual rental and capital-value growth of about 10% to 12% over the last two to three years. With reasonable rents, abundant land supply and improving infrastructure, Hanoi in Vietnam and Manila in the Philippines present attractive options to large-scale manufacturers looking to relocate from other countries due to rising labor and operational costs.

Read entire World Property Channel article here.

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