Historically, commercial real estate has been the most sustainable and result-driven investment option for investors interested in passive income. However, the commercial real estate industry has been facing ups and downs since the onset of the pandemic. This has resulted in a nuanced landscape with sector-specific challenges and opportunities, especially in 2024.
While many of the challenges in the commercial real estate market will continue, there are improvements on the horizon, especially for multi-family, digital, and industrial properties. Industrial properties are poised to experience major shifts as the year continues. This makes it more attractive to potential investors looking to get into the market. By planning today and making strategic moves, you can take advantage of these changes to maximize your investments.
Online shopping continues to grow, fueling a race for logistics spaces near major metro areas. Fulfilling all these orders requires vast warehouses and distribution centers located close to the customer base. Major retailers like Amazon, Walmart, and Target need last-mile distribution centers to accommodate the increased demand for home and business delivery.
Certain industrial property types are seeing demand growth. In particular, last-mile delivery, cold storage, and small bay warehouses are growing in tandem with the rise in e-commerce. Investors able to lease these specialized types of industrial space in major metro areas may potentially see strong occupancy and rent growth. It may also benefit investors not in the market to take the leap and buy into a REIT or invest through a private equity firm in this sector.
Global supply chain problems have highlighted the lack of redundancy in existing logistics infrastructure. Some companies are now making larger investments to strengthen supply networks against potential future shocks. What they hope for is regionalized supply chains and increasing inventory levels. This will require massive new warehouse capacity concentrated near ports and transportation hubs. This will lead to a higher demand for warehouses and similar properties across the nation, especially in transportation hubs.
Several emerging trends will also potentially impact future industrial real estate markets. Seaports are already experiencing stress trying to handle record import volumes. Unloading, storing, and distributing these goods requires spaces close to marine terminals with intermodal transport access. Tenants may also be more likely to accept previously unacceptable locations or building conditions to secure space nearby.
As these coastal markets run out of development sites, demand will shift inland, where they may find more available land and cheaper operating costs. Inland markets that are linked by rail or highway to their coastal counterparts have the highest potential to boom in demand.
New construction will face challenges, though, which will most likely benefit investors with existing properties in their portfolios. Limited land options near major hubs, rising construction costs, and labor and material shortages are all potential hurdles that may slow down construction. Any further delays will continue to worsen the supply-demand balance, leading to a more competitive market between existing industrial properties.
Future industrial facilities are shaping up to look much different compared to traditional warehouses. Some investors and their property managers have been taking the initiative and installing the latest technology to make properties seem more attractive to potential tenants.
Advances in automation have boosted efficiency, and more major e-retailers are looking for facilities that can accommodate these needs. This includes enough space for any robots performing pick-and-pack tasks, automated storage and retrieval systems, and IoT sensors for tracking inventory.
Sustainability has also become a major draw for potential tenants. More warehouses have begun using rooftop solar panels to save on energy costs. High-efficiency HVAC and lighting also help reduce costs for both the tenant and investor managing the property. Sustainable facilities also help tenants meet Environmental, Social, and Governance (ESG) initiatives while reducing overall utility costs.
Not to be overlooked are other modern amenities. Prospective tenants are attracted by high-speed wireless networks, dedicated truck parking, conference and office spaces, and extras like on-site cafeterias and fitness centers. Savvy investors and their property managers may do well by ensuring they offer these amenities and more to prospective tenants.
As offices and retail properties continue to suffer from the effects of the pandemic, investors are beginning to turn to the industrial sector. Demand for storage and shipping space from major retailers is largely driving up tenancy in existing spaces, potentially offering investors a good return on investment.
For investors looking to take advantage of this demand, consider investing with Avistone. We are a private equity firm specializing in the acquisition and management of multi-tenant industrial and warehouse properties. Since our founding, we have acquired and managed over 4 million square feet of flex/industrial properties located nationwide.
Our executive management team also boasts more than 160 years of combined experience in everything from acquisitions to appraisal and asset management. We have the unique ability to integrate extensive capital market knowledge with a “boots-on-the-ground” real estate approach to successfully acquire and operate properties that offer our investors attractive potential yields. Contact us today to learn more about our current offerings!
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