The CBRE 2020 Real Estate Market Outlook Report examines the current state of U.S. commercial real estate, outlining the many possible challenges and opportunities the industry could face throughout 2020.
Authored in late 2019 before the economic impacts of the COVID-19 crisis began to bite, the report predicts an increased focus on outsourcing and significant growth in the third-party logistics (3PL) sector in 2020. This will serve to accommodate the continued rise of e-commerce and the complex operations that accompany it.
Here are four of the report’s key findings.
1. Warehouse Prices Jump Significantly
The average asking price for rent per square foot of U.S. warehousing has risen by 4.8% to $7.86 over 12 months. CBRE attributes this rent increase to newer product and filled industrial space in supply-constrained markets.
The report also predicts that demand for smaller warehouses (under 120,000 square feet) will increase. These micro-warehouses, which are already in short supply, are crucial for organizations who wish to satisfy their eCommerce customers’ demand for same or next-day delivery. Fulfillment centers can be opened in population-dense areas, significantly reducing delivery costs, despite contributing to increased congestion and freight traffic in city centers.
Micro-warehouses are also best-placed to support product customization and enable the adoption of AI and automation. As a result of these factors, the rent for micro-warehouses has increased by as much as 30% over the past five years, whilst the rent for larger warehouses rose by only half that amount.
2. Warehouse Supply Will Exceed Demand
CBRE predicts that supply will outstrip demand by 20-30 million square feet for the first time since the 2008 recession. This comes as the result of increased contract renewals and fewer leases for new space.
Note: COVID-19 will further increase this trend with demand plummeting in many sectors, although e-commerce continues to boom.
3. Trade Conflict (and COVID-19) Will Impact Economic Growth
Political fallout from the COVID-19 crisis suggests trade conflicts between China and the United States are unlikely to be resolved in 2020. Intensifying trade disputes will mean industrial and logistics markets will be affected by slowing economic growth. Consumer spending and supply chain restructuring will need to be carefully monitored. It’s possible that the uncertainty brought about by trade disputes could lead to companies increasingly outsourcing their operations and subsequent growth in 3PL.
4. Secondary Markets Will Appeal To investors
Despite the risks associated with investing in smaller, secondary markets (such as oversupply and lack of liquidity), investors are finding these markets increasingly desirable as supply chain growth demands more facilities across industrial hubs. According to CBRE, Charlotte, Cincinnati, Denver, Louisville, Orlando, Portland, St. Louis, and Tampa are key secondary markets delivering high-income returns in 2020.