4 min read
For years, the rise of e-commerce and demand for last-mile delivery meant industrial properties largely outweighed supply, making them a go-to addition to many investors’ portfolios. As supply and demand begin to even out, industrial may not be commercial real estate’s darling, but the asset class is still highly sought after and continues to perform well.
Judy Guarino, managing director of Commercial Mortgage Lending at Chase, details how the current macroeconomic environment could impact the asset class and identifies industrial real estate trends and property types to consider.
Industrial real estate stabilization
Fueled by e-commerce growth, the number of industrial facilities skyrocketed during the pandemic. In some areas, such as California’s Inland Empire, that has resulted in oversupply. Because Inland Empire is an industrial hotspot, demand is likely to catch up eventually, Guarino said. Other areas, including some secondary, Sun Belt and Texas markets, may battle long-term oversaturation.
Overall, however, the asset class is stabilizing.
“Rent increases are not as steep as they once were. In certain markets, rents might even be decreasing slightly due to oversupply,” Guarino said. “Industrial property rents are showing signs of stabilization, indicating a more balanced market environment."
Asking and effective rents grew by 0.3% in the first quarter nationwide, on par with the fourth quarter, according to Moody’s. This marks the first time since 2020 that rent growth was less than 0.5% in back-to-back quarters. New construction has also slowed, and national vacancies have remained at or above 6.0% since Q3 2023—well below pre-pandemic averages.
The macroeconomic landscape
The U.S. market remains volatile amid ongoing uncertainty around interest rates and trade policy. “Higher interest rates and construction costs are slowing speculative development and forcing sponsors to get more creative with deal structure and underwriting,” Guarino said. But industrial remains resilient.
“Despite the volatility in the macroeconomic landscape, driven by interest rate and trade policy uncertainties, industrial properties near ports remain vital,” Guarino said. “Tariffs may lead to higher costs and supply chain challenges, but these locations are key to maintaining supply chain resilience and adapting to trade shifts.”
Industrial real estate trends
There are several industrial challenges and opportunities investors should keep top of mind:
1. AI and proptech
AI, proptech and other technologies are playing a role in real estate, helping industrial owners, operators and investors:
- Analyze supply chains, traffic patterns and data to help identify viable locations for properties
- Manage inventory, including sorting products and automating other repetitive tasks
- Predict maintenance needs to reduce costs, conserve energy and prevent operational disruptions
AI adoption in particular is quickly growing across all industries, driving increased demand for data centers.
2. Reshoring and labor
Driven by government incentives, shifting global dynamics and trade policies, companies are re-evaluating offshore production. The shift to reshoring increases demand for manufacturing, logistics and distribution space.
New construction is expected to expand the footprint of U.S. manufacturing space by 6% to 13% by 2034, according to the NAIOP Research Foundation report: Manufacturing Growth and Its Effects on North American Industrial Markets.
“The demand for well-located, production-ready industrial space is growing fast, especially in the Midwest and Southeast,” Guarino said.
These locations offer more space and lower prices for industrial properties. But because these areas have smaller populations, there may not be enough workers available. “Industrial users are factoring workforce access into their site selection—and markets without labor are being overlooked,” Guarino said.
Industrial properties in demand
There are several types of industrial properties drawing increasing interest.
Industrial outdoor storage (IOS)
IOS refers to land zoned for commercial use that industrial renters can use for storage purposes. Historically, IOS was just considered land. As the demand for last-mile delivery locations, and their corresponding inventory and vehicle fleets, has grown, so has the need for IOS. The need is especially high in densely populated urban areas, where land can be scarce.
Guarino has seen some industrial locations build upward to add IOS. “There are a few last-mile locations in New York City where the occupant has built a multistory building with truck ramps on the lower level for trailer bays,” Guarino said. “Then the second level and third level are for local delivery trucks.”
Cold storage
Multiple business sectors require cold storage, including agriculture, healthcare and pharmaceuticals. But food and meal delivery services are driving demand for cold storage facilities. Demographic shifts—including urban migration, busier lifestyles and smaller household sizes—suggest this demand will continue. “Cold storage isn’t easy to build or retrofit—but it could be a strong long-term investment,” Guarino said.
The bottom line:
“Industrial real estate isn’t falling out of favor—it’s maturing,” Guarino said. E-commerce growth is helping keep demand strong, especially for cold storage and IOS. AI and reshoring efforts present exciting opportunities and challenges for the sector.
Find out how inflation could impact commercial real estate.
JPMorgan Chase Bank, N.A. Member FDIC. Visit jpmorgan.com/commercial-banking/legal-disclaimer for disclosures and disclaimers related to this content.
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