Same-day delivery could be coming soon for consumers – and that’s also great news for those owning warehouses.

The industrial sector is extremely busy now. I’d call it the hottest slice of the commercial real estate market. I’ve been pursuing the acquisition of industrial buildings since last summer and I’ve witnessed how investor demand is outpacing supply. I have seen firsthand how the fundamentals of this industry have changed over the past 25 years, but the huge spike in user demand for warehouse space for same-day delivery is a first.

These trends tell an interesting story about the industrial market:

  • Occupancy is highest on record in nearly all of the major markets.
  • Average US rents have risen 6.9%, the highest since 1st Q of 2008.
  • Growth is broad based, covering every region and product type.
  • E-commerce sales have grown 16% vs. 2% for bricks and mortar retailers.

Much of what is driving the current spike in demand for industrial can be traced back to consumers and how retailers are trying to accommodate the desire for same-day delivery. Retailers are building out their infrastructure to grow and need more warehouses, according to a REIT outlook published by J.P. Morgan in December. As the report says: “E-commerce has consistently been mentioned by the industrial landlords as being a key reason why demand has continued to outpace supply. Both physical and online retailers continue to work to build out their infrastructures in order to grow and fulfil e-sales and get product to the end customer faster.”

A January report by researchers with KeyBanc Capital Markets echoes this. Ecommerce-based business and technology is believed to be driving strong demand for big spaces.  While interest rate may go up and down, researchers at KeyBanc say there is no stopping of growth in ecommerce.  While brick and mortar retailers suffer, online retail sales growth is in the double digits.

This all supports my bullishness for warehouse markets. Researchers with Morgan Stanley wrote in March that they are seeing an acceleration in the light industrial subclass that is usually smaller in size and present at urban in-fill locations closer to the consumer. In short, companies are looking for more, smaller spaces closer to their consumers same-day deliveries.

A recent forecast by the Federal Aviation Administration predicts a huge increase in commercial drones. By 2021, the FAA’s low estimate puts the number of commercial drones at 238,000 and more than 1.6 million for 2021! The FAA projects the commercial drone fleet should jump more than tenfold to about 442,000 during the next five years, and that’s a conservative estimate, according to the April 3, 2017 issue of Engineering News-Record. The agency says aerial photography is the largest application of small commercial drones and construction, industrial, utility inspection and real estate uses are tied for second place.

Let me know if you are interested in understanding the value for your property. So, great news for those who own urban, class-B warehouses. There are more deals to be had, and perhaps soon you will be able to get that 72-inch television delivered by a drone soon!

Watch the video here.