Picture this: During major e-commerce sales events like "618," orders flood in like tidal waves, warehouses operate around the clock, and workers scramble to fulfill deliveries. Yet beneath this surface of prosperity, industrial real estate growth may be slowing—a warning highlighted in Deloitte's latest research. While e-commerce continues to expand, industrial property developers must navigate emerging risks to maintain competitive advantage.
1. Decelerating Growth: The Underlying Concerns
The e-commerce explosion of recent years fueled rapid industrial real estate expansion, with soaring demand for warehouses and distribution centers. However, Deloitte's analysis suggests multiple factors—including market oversupply, intensifying competition, rising interest rates, and increased capital costs—may soon slow this growth trajectory. This contrasts sharply with the sector's robust performance since 2012, when availability rates consistently declined. Between 2014 and 2018, net absorption approached 1.4 billion square feet, demonstrating remarkable demand. Maintaining this momentum, however, may prove increasingly difficult.
2. Deloitte's Forecast: Industrial Demand Over Five Years
Deloitte's U.S. economic team projects:
- Industrial demand will grow by 850 million square feet in 2023, reaching 14.8 billion square feet—equivalent to the combined real estate inventory of Atlanta and Salt Lake City. While expansion continues, the pace will moderate.
- Double-digit e-commerce sales growth remains the primary demand driver, though it introduces new complexities.
- Rising availability rates and capital costs will dampen demand growth as U.S. economic expansion slows in 2020.
"Near-term market shifts reflect fundamental supply-demand dynamics," explains John D'Angelo, Deloitte Consulting managing director and U.S. real estate leader. "Our modeling doesn't indicate long-term industrial demand decline, but new supply is catching up with demand that may contract in the medium term due to economic deceleration and occupiers' space efficiency improvements."
3. E-Commerce's Multidimensional Impact
While online sales growth dominates space requirements, other factors contribute significantly. Product returns, for instance, require 20% more space than traditional logistics—online shoppers return items three times more frequently than brick-and-mortar customers. With e-commerce sales projected to grow 15% annually through 2023 (reaching 14.8% of total retail), reverse logistics infrastructure will demand additional industrial capacity.
"Managing returns through forward logistics channels can hinder sales growth," notes Thomas Boykin, Deloitte's supply chain specialist leader. "Retailers increasingly establish dedicated reverse logistics networks, necessitating more warehouse space."
4. On-Demand Warehousing: Flexible Solutions Emerge
Platforms like Flexe and Flowspace now aggregate underutilized industrial space to meet seasonal demand, offering businesses scalable, cost-efficient alternatives to traditional leases.
5. Urban Logistics: The Last-Mile Imperative
"E-commerce concentration in urban areas—coupled with expectations for same-day or even hourly delivery—is driving demand for micro-fulfillment centers," Boykin observes. Shared facilities and retailer-owned urban hubs alike will require strategically located spaces within dense metropolitan areas.
6. Strategic Responses for Industrial Developers
To thrive amid slowing growth, industrial real estate firms should consider:
- Monitoring macroeconomic indicators and consumer trends vigilantly
- Optimizing space utilization through automation and smart technologies
- Investing in urban fulfillment infrastructure
- Developing flexible storage solutions for seasonal demand fluctuations
- Strengthening partnerships with e-commerce platforms and logistics providers
The industrial real estate sector stands at an inflection point—where challenges posed by economic headwinds intersect with unprecedented opportunities created by e-commerce evolution. Success will belong to those who adapt most effectively to this dynamic landscape.