Retail and Industrial Assets: 2021 Market Trends
The COVID-19 pandemic exacerbated the pain felt by traditional brick-and-mortar retailers, who have struggled to adapt to changing consumer habits. The death of retail, however, may be overblown. We expect retail anchored by “essential goods,” such as groceries, gasoline, banks, and pharmacies will recover faster than other small businesses and restaurants. That said, as the economy reopens, pent-up demand may lead to a surge in overall consumer spending. Industry leaders will likely capitalize on both online orders, and in-person experiences. Trends toward omni-channel retail — creating immersive in-person retail in areas with robust, affluent foot traffic that connect with e-commerce operations — may present interesting opportunities, especially if such spaces can now be acquired at an attractive basis post-pandemic.
Industrial assets are poised for growth, given the rise of e-commerce and the need for space to support the last-mile retail journey. While the “last mile” is not a new concept, it has become increasingly important, as both order volumes and shipping speeds have increased. Meanwhile, the breadth of products shifting to online ordering has increased—including greater adoption of grocery delivery—increasing demand for, and sophistication of, last-mile facilities. For context, consumers spent $861.12 billion online with U.S. retailers in 2020, up 44% from $598.02 billion in 2019. And if JLL is correct, e-commerce sales could reach $1.5 trillion by 2025 — which would increase the demand for industrial real estate to an additional 1 billion square feet.
To meet consumers’ needs and compete with companies like Amazon that offer free shipping in two days or less, many retailers are now looking to boost their fulfillment infrastructure. This is a large part of the reason leasing fundamentals were so strong this past year, with net absorption surpassing the 250 million square foot threshold.
Source: JLL United States Industrial Outlook – Q4 2020
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