The Current State of CRE Across the US Supply Chain

July 14, 2024

The Current State of CRE Across the US Supply Chain

The logistics sector within the US supply chain has emerged as one of the most dynamic areas of commercial real estate (CRE) investment today. The CRE market is driven by the explosive growth of e-commerce, evolving consumer behavior, and the need for more efficient supply chain solutions, the logistics and industrial real estate market offers compelling opportunities for investors. As a Commercial Real Estate Fund, we aim to provide you with an insightful analysis of the current state of this crucial sector and highlight the key trends and opportunities that can shape your investment decisions.

The E-commerce Boom and its Impact on The CRE Industry

E-commerce has fundamentally transformed the logistics landscape. The shift towards online shopping has accelerated, especially in the wake of the COVID-19 pandemic, leading to a surge in demand for warehousing and distribution facilities. According to the US Census Bureau, e-commerce sales as a percentage of total retail sales have been consistently rising, with significant spikes during lockdown periods. This shift has created a pressing need for last-mile delivery hubs, regional distribution centers, and large-scale fulfillment centers. This fuels growth in the CRE industry.

Increasing Demand for Warehousing Space

The demand for warehousing space is at an all-time high. Vacancy rates for industrial properties have plummeted to historic lows, and rental rates are climbing. Markets like Southern California's Inland Empire, Dallas-Fort Worth, and Atlanta are experiencing unprecedented demand due to their strategic locations and robust transportation networks. Investors should consider these high-demand areas, where the fundamentals remain strong and the potential for rental income growth is substantial.

Supply Chain Resilience and Reshoring

The disruptions caused by the pandemic have prompted many companies to rethink their supply chain strategies, emphasizing resilience and reliability. This shift has led to increased interest in reshoring manufacturing and distribution operations to the US. As companies seek to shorten supply chains and reduce dependency on overseas suppliers, the demand for domestic logistics facilities is expected to grow. Investors can capitalize on this trend by targeting properties that cater to reshoring efforts, such as modern manufacturing facilities and multi-modal logistics hubs. By prioritizing supply chain resilience, companies can ensure a consistent flow of goods to their customers, even through unexpected challenges. 

Technological Advancements and Automation

The logistics sector is also witnessing significant technological advancements. The adoption of automation, robotics, and artificial intelligence in warehousing and distribution is becoming more prevalent. Automated warehouses, equipped with sophisticated sorting and retrieval systems, enhance operational efficiency and reduce labor costs. For investors, properties that integrate these technologies can offer a competitive edge and attract high-quality tenants.

The Rise of Cold Storage Facilities

Another notable trend is the increasing demand for cold storage facilities. The growth of online grocery shopping and the need for efficient storage and distribution of perishable goods have driven this demand. Cold storage properties, which require specialized infrastructure and management, can yield higher returns compared to traditional warehousing spaces. As the demand for fresh and frozen products continues to rise, investing in cold storage facilities presents a lucrative opportunity.

Commercial Real Estate Sustainability and ESG Considerations

Sustainability and Environmental, Social, and Governance (ESG) factors are gaining prominence in the logistics real estate sector. Tenants and investors alike are prioritizing green buildings and sustainable practices. Properties with energy-efficient designs, solar installations, and LEED certifications are becoming more attractive. Incorporating sustainability into your investment strategy not only aligns with global trends but can also enhance the long-term value and marketability of your assets. Commercial real estate sustainability is a core consideration when developing CRE investments. 

Key Markets to Watch

While major logistics hubs like Los Angeles, Chicago, and New York/New Jersey remain critical, emerging markets are also worth noting. Secondary markets such as Memphis, Indianapolis, and Louisville are gaining traction due to their strategic locations and lower costs. These markets offer significant growth potential and can provide attractive entry points for investors looking to diversify their portfolios.

The logistics space within the US supply chain presents a wealth of opportunities for commercial real estate investors. The e-commerce boom, demand for warehousing space, supply chain resilience, technological advancements, cold storage growth, and sustainability trends are all driving the sector forward. As a Commercial Real Estate Fund, we encourage investors to stay informed about these trends, evaluate potential investments carefully, and consider diversifying into high-growth logistics markets. By leveraging these insights, you can position your portfolio to capitalize on the ongoing evolution of the logistics real estate landscape.

Investing in the logistics sector is not just about riding the current wave; it's about anticipating future needs and being at the forefront of an industry that's crucial to the modern economy. With the right strategy and a keen eye on emerging trends, the logistics space offers a pathway to robust and sustainable returns.

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Investing in the commercial real estate space is a great way to enjoy passive income while watching your investments grow. In an uncertain market like today, CRE investment can bring stability to your portfolio.