Warehouses Are a Bright Spot for the Real Estate Industry

Some Real Estate Sectors Battered by the Pandemic

Many sectors of the real estate industry, from hotels to offices to multi-family homes, have been severely impacted by the pandemic. However, industrial real estate has seen far less turmoil over the course of 2020.

Shutdowns led to a decline in both industrial production and international shipping, which impacted the industrial real estate sector as a whole. Yet, the pandemic has also caused shifts in consumer behavior that actually may have helped the sector, including the ecommerce boom. Warehouses and other real estate that support ecommerce are in high demand. While investors are reluctant to purchase any commercial real estate and are likely waiting for prices to stabilize, interest in warehouses is still robust.

Demand for Industrial Real Estate Stays Strong

Just this month, real estate investor BentallGreenOak made one of the largest single-asset industrial property purchases of the year, spending $164 million on a warehouse in New Jersey. In April, a total of $2.4 billion worth of industrial property sales took place. Although this amount was the lowest figure for April since 2011, industrial property sales have not suffered as much as sales of hotels and retail buildings.

Over the past three years, industrial real estate prices climbed by over 30%. Though they have dipped 4% between the beginning of March and the end of May this year, many investors are hopeful industrial real estate will continue to go up in value after this downturn.

The Future of Warehouses

In recent years, tens of billions of dollars have been spent on industrial real estate, especially near large urban centers. For example, Blackstone Group (BX) bought 850 million square feet of warehouse space for $18.7 billion last year. Investors are hoping the value of these properties will continue to increase as ecommerce gains more popularity.

During the height of the pandemic, demand for online ordering soared. As lockdowns begin to ease, investors will be watching closely to see if people stick to online shopping habits formed during quarantines.

In the long run, investors will also be interested to see if people stay concentrated in urban centers or move to smaller communities as a result of the pandemic. These shifts would impact the value of warehouses and other industrial real estate in cities.

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