Macro-Economic Trends Reshape Supply Chain, Positively Impacting Industrial Real Estate
By: Phil Simonet, Principal
While some sectors of commercial real estate are challenged following the pandemic and an anticipated recession, industrial real estate has been strengthened due to societal pressure and policy changes. Societal pressures are creating the demand to bring back manufacturing from overseas. Several policy changes – including the CHIPS Act, and Trump-era tariffs — made that move more likely. Manufacturers of computer chips, pharmaceuticals, and other high-value products are incentivized through changes to tax code and import rules, which make it more popular and profitable to produce products domestically. A likely outcome will be suppliers of those components clustering around the high-value manufacturers, resulting in companies migrating to cluster near certain manufacturers. A final benefit to the end use, is likely a cost-effective product that is less impacted by shipping and fabrication delays. In the real estate world, industrial properties are poised to be in high demand in specific clusters across the United States.
Reconfiguration of the Supply Chain Underway
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.
Importing of Goods Will Shift
Industrial Real Estate Owners and Developers Should Look for Opportunities to Support the New Supply Chain
Q3-2022 Industrial Market Report
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