Imagine this: online orders flood in like snowflakes, warehouses overflow with goods awaiting shipment, and delivery vehicles crisscross cities. Yet beneath this bustling facade, industrial real estate growth may be decelerating. A new Deloitte study reveals this emerging trend and examines its driving factors.
Industrial Real Estate Outlook: Warning Signs of Slowing Growth
While e-commerce continues to fuel supply chain expansion—with online sales projected to grow 15% in 2019—Deloitte's report suggests warehouse, distribution center, and flexible space growth may not keep pace. This contrasts sharply with recent years' robust expansion, where industrial property availability rates consistently declined since 2012, with nearly 1.4 billion square feet of net absorption between 2014-2018.
The study identifies market oversupply, intensifying competition, rising interest rates, and increased capital costs as factors likely to slow industrial real estate growth. Macroeconomic conditions, shifting tenant demands, last-mile delivery challenges, and rapid technological advancement could collectively reshape warehouse space requirements and design in coming years.
Deloitte's Forecast Model: Five-Year Demand Trends
Deloitte's U.S. economic team projects several key developments:
- Growth continues, but slows: Industrial space demand is expected to reach 14.8 billion square feet by 2023—adding 850 million new square feet, equivalent to Atlanta and Salt Lake City's combined real estate inventory. While demand persists, its growth rate moderates compared to previous years.
- E-commerce drives requirements: Double-digit online sales growth will sustain industrial space needs, as retailers require larger facilities for inventory storage, order processing, and returns management.
- Supply and cost pressures: Rising availability rates and capital costs will temper demand growth, particularly as U.S. economic expansion slows in 2020. Businesses will likely adopt more cautious expansion strategies and prioritize space efficiency.
"Near-term market shifts reflect fundamental supply-demand economics," explained John D'Angelo, Deloitte Consulting managing director and U.S. real estate sector leader. "Our modeling doesn't indicate long-term industrial real estate demand decline. However, new supply is catching up with demand, while anticipated economic softening and occupiers' space efficiency improvements may cause near-term demand contraction."
E-Commerce's Spatial Demands: The Returns Challenge
Online retail's explosive growth creates unique logistical challenges—particularly returns processing. E-commerce shoppers return items three times more frequently than brick-and-mortar customers, requiring 20% additional space for reverse logistics operations compared to traditional retail.
With e-commerce sales projected to grow 15% annually through 2023—reaching 14.8% of total retail—return volumes will proportionally increase, driving further industrial space needs. Companies must reevaluate logistics strategies and invest in efficient returns management systems.
"E-commerce's 15% annual growth projection, combined with online returns being triple the rate of physical stores, necessitates reverse logistics infrastructure expansion," said Thomas Boykin, Deloitte Consulting supply chain specialist leader. "Some retailers find that managing returns through forward logistics channels impedes customer fulfillment and sales growth. Many now explore dedicated reverse logistics networks, requiring additional warehouse and processing space."
On-Demand Warehousing Emerges as Flexible Solution
The report highlights how platforms like Flexe and Flowspace aggregate underutilized industrial space to meet seasonal storage needs. These solutions provide businesses greater flexibility to scale warehouse capacity according to demand fluctuations.
"E-commerce customers increasingly concentrate in urban areas while demanding faster, cheaper service," Boykin noted. "Expectations for same-day—even same-hour—delivery grow rapidly. Meeting these expectations within dense urban environments drives demand for city fulfillment centers. Some facilities will operate as shared on-demand warehouses, while larger retailers maintain dedicated spaces. Either scenario requires more small-radius urban locations."
Conclusion: Navigating Challenges and Opportunities
Despite potential growth moderation, industrial real estate retains significant opportunities through e-commerce's continued expansion. Businesses must monitor market shifts and proactively address challenges through space optimization, logistics improvements, technological investment, and innovative warehousing models. Such measures will ensure competitiveness and enable companies to capitalize on digital commerce's growth potential.
The industrial property market enters a period of both challenge and opportunity. Success in this evolving sector will require vigilance, preparation, and strategic adaptation to changing conditions.