Western Real Estate Business

OCT 2018

Western Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in the Western United States.

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www.REBusinessOnline.com Western Real Estate Business • October 2018 • 47 ECONOMY, ECOMMERCE AND EXPERIENCE: THREE TRENDS IMPACTING INDUSTRIAL REAL ESTATE The future of commerce is upon us — and much of it is directly linked to the industrial sector. By Robert G. Thornburgh, Kidder Mathews T he industrial market has become the hottest sector across the Unit- ed States, with California setting the pace. This activity is driven by an extraordinary surge in ecommerce and expanding global trade. We face a vastly different environment today than the industrial real estate land- scape so incredibly impacted by the economic decline nearly a decade ago. One simply must look at the unprec- edented wave of growth with record demand to be convinced of the up- turn in the industry. Consider the cur- rent global appetite for investments across all product types, the influence of ecommerce, changes occurring in office and retail use, mergers and acquisitions, the quickly expanding influence of technology and the next generation of real estate professionals coming into the business. All of this makes for an exciting time to be in commercial real estate. Economy The U.S. economy is on a remark- able upward run. Economic activity is proving somewhat impervious to an assortment of unique influences rang- ing from political administrations to natural disasters. There is not a single industrial market or sector that isn't currently experiencing record-break- ing numbers. Simply put, each sub- market has its own story, but they all end in a transformative environment that is repositioning antiquated real estate and pushing building design, lease rates and real estate profession- als in new ways we have not expe- rienced before. Strong GDP and job growth in 2018 have set the stage for long-term real estate demand and ab- sorption. There appears to be no stop- ping the forward momentum and its positive impact on the value of real estate. Unrelenting demand for real estate and the highly competitive en- vironment for talent is contributing to the flourishing market and economy. Ecommerce Changing consumer and lifestyle trends — surrounding how we live, work and play –— have clearly been the primary driver for the industrial market. This has led to new develop- ment, robust rent increases and, in the process, steadily increasing property values. The recent transformation of retail is the result of a steadily growing economy and population base that are demanding more products. They want these products from various indus- tries, including construction, food and beverage and household items, all of which are on the rise. Ecommerce has created a spike in the development of massive distribution centers that are well-located. With Amazon setting ex- pectations for products to arrive in 48- hour windows, industrial fulfillment centers must be situated near popu- lation centers to meet consumers' ex- pectations for fast product delivery. Online fulfillment has pivoted from delivering direct to store to delivering direct to the doorstep. This pivot is seen as recession resistant, since even if the economy dips, consumers will still want to order the basics. The rise of demand results in supply increase, leaving nothing but growth ahead for industrial warehouses. Experience Commercial real estate has always been a business that heavily depends on interpersonal relationships. How- ever, we must observe the landscape — things are changing at an acceler- ated pace. There is a younger group of professionals who look at things differently. Those leaving the work- force have not invested the same time, energy and resources thinking about search capabilities and their digital presence. This new group does, and it touches every aspect of our industry, from brokers and buyers to service providers and so forth. The newest generation entering our industry is creating a virtual experience for cus- tomers to conduct deals completely online. People will only grow more comfortable transacting deals digital- ly. Access to online resources and tools will allow clients and industry profes- sionals to facilitate more deals with increased efficiency. This same ease of access will also provide expanded in- formation to the consumers, changing the value proposition that real estate professionals have grown accustomed to bringing. From recession to renaissance, in- dustrial real estate is experiencing a revitalization. The U.S. economy is mounting, technology is improving and with this comes further innova- tion. The industrial market continues to thrive and reinvent with growth in international trade and online retail furthering the sector. Online shopping and consumer demand is changing all preconceived notions we once had for distribution centers. Once considered the ugly duckling compared to "lux- ury" sky-scrapers, warehouses and distribution centers are now vital to appease the consumer. Growing ecom- merce operations are positioning ten- ants to seek smaller distribution cen- ters closer to urban cores. Technological advancements will not stop at products, but will turn to self- presentation. Those breaking into the broker industry are taking advantage of the new possibilities available to offer their services. Through online profiles, data and transactions people are becoming more at ease with digi- tal practices. It's impossible to ignore the influences of technology and the corresponding rapid rate of change. Despite it all, we are only just getting started in terms of its overall impact on our industry. Robert G. Thornburgh is Partner and Executive Vice President in Kidder Mathews' Long Beach, Calif., office. Thornburgh is also the upcoming President of SIOR. Robert Thornburgh Kidder Mathews Kidder Mathews recently directed the sale of Downey Industrial Center, a 29.1-acre industrial site in Downey, Calif., for an undisclosed amount. Prologis acquired the center from Downey Industrial Center LLC.

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