New Report: Recession Produces Headwinds for Industrial Real Estate

Originally published by Dr. Hany Guirguis, Manhattan College and Dr. Timothy Savage, New York University on August 2020 for NAIOP Research Foundation

COVID-19 Spurs Demand for E-Commerce, but Recession Produces Headwinds for Industrial Real Estate

The U.S. macroeconomic landscape has deteriorated significantly since NAIOP’s February 2020 Industrial Space Demand Forecast. Most notably, the economy entered a recession that is likely to continue through the end of the year. Although industrial real estate has outperformed other commercial property types this year due to a surge in e-commerce, broader macroeconomic indicators suggest industrial space absorption will decline sharply in Q3 2020 and then rebound to positive levels in Q2 2021 (see Figure 1).

After spreading quickly within the New York tri-state area, the COVID-19 pandemic moved south and west to states such as Arizona, Florida and Texas. As of mid-August, U.S. states and municipalities continue to implement a patchwork of public safety orders and partial lockdowns on business activity. Solutions to this crisis depend on the development and distribution of a successful vaccine; three candidate vaccines will soon enter large-scale trials.

Prior to the pandemic, CRE was already being disrupted by several major economic trends, in particular the growth of e-commerce. In part, this was driven by the economic efficiency of e-commerce distribution over traditional brick-and-mortar retail.1 The pandemic will likely accelerate the transition of retail sales online, which will continue to drive long-term demand for industrial space. In urban and suburban communities, same-day and next-day delivery through e-commerce will support industrial absorption. The automation of physical tasks within warehouses and distribution centers has the potential to increase their efficiency, further contributing to e-commerce’s competitive advantage over traditional retail.2



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