The industrial sector remains the foundation of the global economy

July 18, 2024 | 11 min read
Arthur Jones
Senior Director, Global Research and Strategy
Vance Voss
Managing Director, Portfolio Management
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At-a-glance

  • Near-term challenges
  • Global trade is here to stay and so is structural demand
  • E-commerce has regained its footing and is here to stay
  • Strong performance and a bright outlook

The industrial and warehouse sectors have been among the most sought-after by real estate investors since the U.S. economy recovered from the Global Financial Crisis (GFC). The sustained increase in global trade, the proliferation of e-commerce retail, and the continued evolution of the North American supply chain have necessitated new and innovative development as well as created new opportunities for real estate investors to engage in the sector over the past decade. While the industrial market today faces both cyclical headwinds stemming from high levels of new supply due to lofty valuations following the pandemic and capital market challenges that are facing most sectors, we believe that the sector is well-positioned to capitalize on long-term structural demand drivers over the longer term. In fact, given that industrial values today are 12% below the peak it may be an attractive entry point into the sector for investors.

We view the challenges facing the industrial sector as purely cyclical and feel that they will be resolved over the shorter-term outlook. Consequently, the industrial sector remains one of our top high-conviction long-term strategies, particularly for investors who are focused on sustainable global and domestic economic demand drivers. While many other property sectors have struggled in the current capital market environment, industrial valuations have generally outperformed, and assets have delivered stronger income growth than other traditional property types. In the longer term, we believe that there are several reasons for optimism for continued outperformance. Globalization remains a resilient trend and U.S. supply chains are reconfiguring to take advantage of the emergence of new leading trade partners as well as selective reshoring of manufacturing processes. The continued evolution of e-commerce will also sustain new demand over the next decade as new technology will continue to alter both the retail and logistics landscape in the U.S. and globally. Though capital market headwinds have made it difficult in some cases to access debt, the industrial sector has remained among the more well-capitalized throughout the cycle. We believe that given the sectors secular demand drivers, a reduction in supply due to capital market headwinds and value corrections that have already occurred will make 2024-25 an interesting entry-point and a unique opportunity to increase investor weighting to the industrial sector.

Read our full perspective to learn about current current state of the market as well as some of the structural themes and dynamics of the U.S. industrial sector with an emphasis on growth drivers, which will be the key to sustained and broad-based demand.

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MM14050 | 06/2024 | 3659533-122025
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