The online e-commerce shopping boom sure has put a dent in retail and commercial real estate space as a whole, but is the damage getting worse or can industrial real estate bounce back and remain solid? The next downturn in CRE will be catalyzed initially by a stagnant economy and low growth, followed by multiple years of mild-to-escalating recession, credit re-rating, and demand for higher risk premiums by capital providers. Income growth will slow or go negative in the medium term, cap-rate compression will cease, and finding new tenants will be very difficult. With this happening, we will also witness aging demographics and subtle changes of consumption baskets and lifestyle, that revolutionize the format of office and retail.
Industrial rental rates have skyrocketed in urban areas due to the boom of e-commerce. The demand for third-party logistics, also known as 3PLs have increased substantially. This has driven up rental rates in the industrial market. The industrial market in New Jersey alone has increased 11% year over year. The question of sustainability of rental increases emerges.
The NJ industrial real estate market has now been in a bull market since 2013. Prices have seen levels that were thought to be untouchable, as short as five years ago. Inventories are still relatively low and the question on everyone’s mind is, “Where do we go from here?”