Impacts on Industrial

The industrial market has remained relatively stable thus far during the COVID-19 pandemic. Landlords continue to collect 80-90% of their rents since the pandemic began and are receiving minimal requests for rent relief. Rental rate growth is stalled, but a significant decrease in rates has not been seen yet. Markets that are considered last mile are expected to rebound faster as companies such as Target, Wal-Mart, Home Depot and Lowe’s are still expanding. Rental rates in these markets are anticipated to increase first as they will be in much higher demand by these essential companies.

Leasing activity is picking back up as states begin to ease shelter in place orders and in person tours are returning. E-commerce companies continue to drive demand, particularly, for build-to-suit distribution centers that are fully automated and create increased supply-chain efficiencies. The supply-chain is beginning to see a switch from just in case to just in time. There is significant discussion in the market as to just in case becoming a long-term market shift in inventory levels. Proximity to their clients is more important now than ever before in order to get product back in the stores at a faster pace. Companies are seeing a surge in their inventory, such as Amazon, which currently has 40% more inventory on hand than they did a month ago to keep up with the increased demand.

Construction activity has seen a dip in the number of new projects breaking ground, especially speculative projects. Lenders are focused on previously executed loans and have increased requirements for speculative development loans. However, this is anticipated to be a short-term slowdown in lending as the market begins to open back up. While most construction workers were deemed essential and work could continue in many markets, new challenges presented themselves and slowed progress on site. Supply chain delays make it difficult to get materials needed and heightened security measures limit the number of workers allowed on site. As construction delays persist and demand remains low, the probability of any surplus of new supply going unleased for some time becomes more likely.

Industrial investment activity is seeing a slight decline as any investors continue their “wait and see” approach to the pandemic. Transactions that are occurring were either already close to complete before the pandemic or are properties that investors believe are essential to growing their portfolio. However, some of the larger players, such as Blackstone, are still being pushed to continue with their investments. The industrial market has also begun to see an increase in non-industrial investors looking for product as they believe it is the strongest performing sector right now.