December 13 2021

Will Industrial Real Estate Top Commercial Markets in 2022?

The industrial real estate sector of the commercial real estate market has been a top contender in investing for the past decade. Over the last five years, industrial real estate investment trusts have been at the top of all commercial REIT investments according to NAREIT data.

For the year 2021, the industrial real estate sector has earned an annual total return of 32.3% says the National Council of Real Estate Investment Fiduciaries. This number is reported as more than double the next leading commercial real estate sector.

During this time investors have seen a lot of return due to the explosive growth within this industry. This is leading some real estate investors to wonder where this sector of commercial real estate is headed and if it will continue to stay strong through 2022.

So, what is the answer to the question of “will industrial real estate demand be sustained into next year”?

The greatest determining factor for commercial real estate growth potential in 2022, especially where industrial real estate is concerned, is supply and demand. Currently, all determining factors point to there being a continued demand beyond next year for industrial real estate.

The explosive growth demand in industrial real estate is in most part due to the rise of e-commerce across the country. The more that people conduct business online, especially shopping, the more demand there is for creating industrial properties to manufacture, store, and coordinate the delivery and shipping of these online purchases.

Between the years 2014 and 2020 online sales rose 220%, totaling an impressive $4.28 trillion in the year 2020. Numbers like this can suggest that the industrial real estate market may be sustained in the future, but online sales make up only about 20% of all retail sales currently. Numbers show there is still room for growth with online sales.

A report was recently published by one of the largest industrial REITs that has given a little insight into the high demand for industrial real estate currently. Vacancy rates have reached a surprising low of just 3.9% while rent growth has increased 7.1% quarter over quarter as companies are competing to be tenants in industrial spaces.

Warehouse spaces, as well as logistics and fulfillment centers, are at the top of the industrial real estate demand. However industrial real estate is seeing other many new drivers that support the sustained demand for properties beyond next year.

An increase in supply chain challenges across the entire world has been driving manufacturing to be more productive within the country. This is helping to drive the long-term demand for more industrial real estate space outside of traditional warehouses. There’s been a high growing demand in small to midsize industrial properties that serve the niche of creating logistics centers that are the final step in e-commerce deliveries such as offering two-day shipping.

The answer to the question of “will the demand for industrial commercial real estate properties stay strong into next year?”:

Every sign as to whether industrial space will continue to have a high demand into next year points to an overwhelming yes. There is not much concern about this market reaching any over-development in the coming year or in the near future beyond 2022. It is expected that next year will be another great year for investment in the industrial sector of commercial real estate.

For more information on purchasing commercial real estate in Snohomish County, please contact us anytime.