The industrial market after COVID: Where are we?
If there’s one thing I’ve learned working in commercial real estate, it’s that life continues to go on. While many businesses have been hit hard by the pandemic, I would say just as many are doing well – or even thriving – in our post-COVID reality.
Don’t misunderstand, my heart aches for many of the local businesses in our town. Small businesses – whether they be local restaurants, bars, shops, studios or salons – have undoubtedly been hit the hardest. I teach at a local dance studio in my free time, and I’ve watched its owner work at least twice as hard just to make the same (or less) revenue as before 2020.
Yet, with the boom of e-commerce during the pandemic, short- and long-term demand for industrial real estate properties has escalated as vendors and producers of staple goods seek out additional warehouse capacity. During the first quarter of 2020 alone, in fact, industrial leasing hit a three-year high.
The continued volume of digital sales has also had a substantial effect on several other industries, including distribution and logistics, construction, and food and home services.
Distribution and logistics
Most people can agree that online purchases have been crucial during the past year. Online sales skyrocketed after March 2020, as much as 44 percent for the remainder of the year, quadrupling the year-over-year rate.
As such, the logistics industry has kept busy: Online vendors require significant logistics to get products from A to B and then to your door. Often, these products make their way back to a distribution or fulfillment center. This 44-percent uptick in e-commerce sales has necessitated the widespread use and development of new distribution centers, warehouses and storage spaces, which in turn have contributed to a boom in the industrial development sector.
As a central logistics hub in the U.S., industrial development in Kansas City has particularly flourished as major tenants and retailers look to the heartland for their storage and delivery needs. Nestled at the intersection of several important cross-country interstates – and the largest rail transit center in the U.S. – Kansas City offers unique advantages in the transportation and logistics space other Midwestern cities cannot.
All of these aspects have contributed to significant industrial development within the KC metro area.
This past year has fundamentally – and permanently – changed construction as the industry continues to evolve its practices around COVID restrictions.
Contactless technological innovation has been key for builders and developers and the ways in which they conduct business. Some of these new developments include smart contracts and blockchain technology, drone usage, remote worksites, augmented reality (AR) and Building Information Modeling (BIM) to conceptualize spaces, and the overall automation of labor. Enhanced health, cleanliness and safety protocols have also been more strictly enforced, both on work sites and off.
As the pandemic continues into 2021, we can anticipate a more widespread adoption of these new technologies. While 2020 was an anomaly in statistics for the construction industry, the outlook is hopeful: An upswing in construction is expected throughout 2021 as the U.S. economy recovers from the pandemic.
While we all understand COVID-19 restrictions have hurt local restaurants and bars, they haven’t hindered people (at least me) from finding great food and drinks in Kansas City. Food delivery services like DoorDash, Grubhub and Uber Eats have become a weekly staple in homes across the country. Online grocery pickup or delivery services are now available at most grocery stores (if they weren’t available already).
As the predominance of online grocery orders is expected to continue even post-pandemic, expansion in cold storage space will be a necessity to keep up with this service. Demand has also increased for industrial real estate properties that enable companies to deliver orders faster by being closer to their customer bases.
This heightened need for industrial space has affected other sectors that may surprise you, including nonprofit organizations. The nonprofit Kanbe’s Markets, a tenant of Copaken Brooks, delivers fresh local produce to those who are food-insecure within USDA-designated food deserts. After witnessing massive growth during the pandemic due to community need, the organization expanded its warehouse space by 12,000 square feet earlier this year.
An increasing number of people have chosen to stay home over the last year, and as a result, many have self-identified the project needs in their homes. What were once viewed as “luxury” services have now become standard in today’s homes, requiring many home services to meet increasing demand.
Overall, research shows that 57% of homeowners found time in 2020 for home improvement projects. A study done by Porch.com also reported a 275% increase in deck construction from March to July 2020, as well as an uptick of 238% in hiring landscapers and a 144% increase in fence construction installation. Home Depot’s sales, for example, in the same time period surged 23.4% from the previous year, while Lowe’s reported a similar 30% increase.
The show must go on
We’re not in a buyers’ market or a sellers’ market right now. We’re occupying a time and place in this world where the needs of consumers, tenants and landlords are rapidly shifting as we adapt to an unprecedented environment.
Those that adapt successfully will continue to grow and thrive, and those who can’t will quickly be replaced by those who are.
Jeremiah Dean, CCIM, is vice president of leasing at Copaken Brooks, a full-service commercial real estate firm headquartered in Kansas City and serving the Midwest. The company’s full suite of services includes: leasing (office, medical, retail, industrial and underground), construction management, investment acquisition and sales, tenant representation and HQ relocations, condo management, property management, asset management, and development. Share your thoughts on our Facebook page or on Twitter @CopakenBrooks.