Macro-Economic Trends Reshape Supply Chain, Positively Impacting Industrial Real Estate By:  Phil Simonet, Principal

At the macro level, we expect this iterative process to reconfigure the supply chains. At the micro level, we expect individual businesses to stock more input goods and finished goods – as opposed to the last 20 years of “just-in-time delivery.” During the COVID-19 shutdown many companies learned that not having the available components to complete their manufacturing process could cause serious delays.  Fear of a recurrence of that bottleneck, gives more credence to the projected increase in storage and distribution centers. Distribution networks, like Amazon, are evolving due to consumers’ expectations of how quickly they can physically have a product. In the previous centralized network, goods would move from hub, to spoke, to store. The stores are generally located near other stores. Then, consumers would drive from geographically dispersed areas to the store to purchase and physically possess the item. In the decentralized network, goods move from hub, to spoke or maybe multiple spokes. From here, goods travel to the end consumer, skipping the cluster of stores.  This new decentralized distribution network requires much more storage of finished goods near population centers to ensure faster delivery of a larger catalogue of items. Ultimately, the world of industrial real estate will need to evolve to offer new products that support this new model – but ultimately, this change will positively impact industrial real estate.

This change doesn’t mean an end of the import business. Certain low-value, non-essential products (like Mardi Gras beads) will continue to be produced abroad and imported. In addition, consumers will still go to stores to buy those and many other items, supported by a desire to touch and feel. But the societal and policy changes that encouraged a move of the supply chain to domestic locations is here to stay – the manifestation, not cause, of larger societal and global trends and themes.

We expect that owners and users of industrial real estate will dictate changes to the form, function, and location of these new clusters of storage and distribution centers that are designed to simplify and reduce the cost of manufactured goods across the supply chain. Those new clusters will need highway access, and access to employment – and while many of those clusters exist already in the industrial market, they continue to develop across the Twin Cities.