Warehouse & Flex

The fourth quarter of 2020 was another strong period for the industrial property type. E-commerce sales soared as concerns over COVID-19 pushed consumers to shop online. This generated new demand for warehouse and distribution space. Unlike other property types, employee occupancy in industrial buildings has generally remained high throughout the pandemic. Many industrial employees are essential workers, and social distancing is easier to practice with industrial’s higher square footage per employee. All this generates a need for industrial space even in tumultuous economic times. There are still challenges for industrial companies, including a disrupted global supply chain and uncertainty over the US economy. But industrial has been a clear property type winner for most of 2020.

Mirroring these broader macro trends, the industrial market in Boston is record tight. General industrial leasing activity surged higher than before the pandemic, driving 3.4 million square feet of annual net absorption. Vacancies at 3.7% are as low as they’ve been since Lincoln Property Company began tracking data. While flex had slight negative absorption, current demand is similar to what the market had in 2019. Warehouse development has begun to increase as strong rent growth has enticed developers to move forward on construction projects. The investment sales market may be the most notable phenomenon in Q4. More than $1.2 billion in general industrial trades occurred in the fourth quarter, almost five times the amount as the same time the year before. Strong belief in the sector’s tailwinds, plus limited opportunities in other property types, means surging investor interest in industrial product.

Looking Forward

Given that e-commerce companies rank among the largest drivers of industrial demand, online sales numbers bode watching. E-commerce sales over the past decade have typically grown annually between 10 to 15%, high figures but well below the 35% or more growth post-pandemic. It remains unclear how much further e-commerce sales will grow as the nation recovers from this crisis. If e-commerce sales revert to the growth rate of 2010-2019, look for demand to be good. If post-pandemic e-commerce growth is sustained, look for demand to be great.