March 25, 2021

Pandemic-Driven Industrial Real Estate Trends That Will Last Beyond 2021

Pandemic-Driven Industrial Real Estate Trends That Will Last Beyond 2021

COVID-19 knocked every industry out of its familiar patterns. While office space, retail, hotels, and other sectors of commercial real estate suffered serious losses in 2020, industrial thrived on demand for fulfillment and warehousing space. Given the unprecedented nature of the global pandemic, it’s been difficult to determine what pandemic trends will remain in a post-pandemic world. All Americans will become eligible for COVID-19 vaccinations starting on May 1st, 2021, which has many business leaders focused on what a return to “normal” will look like.

The commercial real estate sector will likely take years to return to some sense of normalcy. Even then, some of the lessons learned and trends developed during the pandemic will linger for many years to come. Here are some of the pandemic-driven industrial real estate trends that we expect to last beyond 2021.

A Higher Focus on Health & Safety

Though coronavirus will eventually subside, some of the habits we’ve developed will stay. Landlords can increase the market appeal of their warehouses and other industrial properties by incorporating better health and safety features into properties before leasing. Property owners will need to ensure incoming tenants have what they need to keep their employees safe, such as:

  • Good air quality. Living for over a year with the threat of an airborne virus has left people understandably nervous about indoor air quality in the places they work. Upgrading the air filtration capabilities of a building’s HVAC system will keep future occupants safer and act as a selling point for the property.
  • Versatile plumbing. In a pre-pandemic world, most employees were probably fine washing their hands in the restroom or breakroom and didn’t give it much thought throughout the rest of the day. Now, however, coronavirus has increased the average person’s awareness about the correlation between handwashing and getting sick. We will likely see more handwashing sinks at workstations and other new places where they wouldn’t have been before, so landlords who accommodate that demand will make their properties more appealing.

E-Commerce Will Keep Market Share

The massive shift in retail from in-store to online was already happening anyway, but the pandemic accelerated the process by years. While at first it was uncertain whether this growth was sustainable in a post-pandemic world, most experts now agree that e-commerce will retain much of the market share it took from physical stores in 2020. Even as a vaccinated population becomes more comfortable shopping in stores, they won’t easily forget the convenience of online shopping. This will have multiple impacts on industrial real estate, including:

  • Ongoing demand. Growth in demand for logistics real estate isn’t going anywhere soon. Higher average e-commerce activity will fuel a continuing need for fulfillment space to support it. Developers and industry stakeholders will continue investing in new constructions and properties for retrofitting as long as demand continues. The bubble will pop eventually, but it won’t be in 2021.
  • Retail shift. While shoppers will undoubtedly return to stores in greater numbers in 2021, physical retail was already in trouble before the pandemic. As demand for physical retail space continues its slow decline, some of these properties will undoubtedly undergo retail-to-logistics conversions to meet the aforementioned demand for warehousing and fulfillment space.

Cities Will Be Fine

The pandemic caused an exodus of people from population-dense areas, which caused a lot of panic about the death of big cities. However, this same time period also saw rapid growth in demand for urban fulfillment centers. That’s because the net loss for most big cities turned out to be negligible. In New York City, for example, the net loss in 2020 was only about 70,000 people since people moving into the city in search of employment or due to falling rent prices largely balanced out those who had moved away.

So, while rural migration will likely continue for several years, a counter trend of urban migration will probably continue to balance it. As corporate offices begin opening again in 2021, this will also drive people back to cities. As long as the populations of major cities remains in the millions, demand for industrial real estate in and around those cities will remain high as well.

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.

Kurt Jensen is the Senior Vice President, Acquisitions & Leasing of Phoenix Investors, a national real estate firm specializing in industrial real estate based in Milwaukee, Wisconsin. He is a seasoned executive with over 25 years of entrepreneurial, management, and deal-making experience.

Frank P. Crivello is a Milwaukee-based developer and Chairman & Founder of Phoenix Investors.

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