For Industrial Markets, Smaller Networks Yield Bigger Returns

A sort of funny thing happened during the pandemic when our worlds shrank. Lockdowns, remote work, and Zoom classrooms had most people circling around the same few hundred square feet for months but, though our physical spaces became hyper-localized, our expectations remained global. We were stuck at home but we still expected to get what we wanted, from online cart to front step, in not more than two days. So retailers powered through shortages, supply chain vulnerabilities were laid bare, and consumers continued to demand that the world be delivered to their door. With expedited shipping. And free returns.

It will be years before we can truly see how the pandemic has effected everything from the global economy, to healthcare, to the workplace. But it's pretty clear right now how industrial real estate is growing and adapting to expectations (we even wrote an entire case study about it). Across the board, from manufacturers, to suppliers, retailers, B2B, B2C, and even the data economy, industrial markets are responding to the call and, after some lengthy overseas excursions, they are coming home.

E-commerce went into overdrive during the pandemic, and the repercussions are still playing out. Warehouse vacancies are tight and consumer spending is still strong. The market is responding by building more, building better, and building closer to home. On-shoring looks like it's becoming a new normal, no surprise since it reduces some of the risks and costs associated with overseas supply chains and logistics.

Manufacturers and retailers, from Bezos-behemoths to regional "mom-and-pops", are looking to spread out across networks of industrial "nodes", shrinking the distance between suppliers and demanders. This trend has been in the works for a number of years but there's not denying that e-commerce really popped off when it was the only option for a lot of people, and no denying that consumers have come to expect boundless selection and swift, if not same-day, delivery.

Pandemic-related effects notwithstanding, the biotech industry has been booming for a number of years (take 745 Atlantic and our life-sciences work as examples). Even if you're not a biologist, you've heard hype about CRISPR. The U.S. is home to some of the world's greatest biotech research labs and institutions and now the biotech manufacturers are returning to the source so they can bring those breakthroughs to market more quickly.

Life-science labs, biotech manufacturers, and the healthcare industry in general have to contend with a dizzying tangle of logistics and regulations to get life-changing medicines to market. And on top of all that is the daunting responsibility of gathering, analyzing, and protecting that ever-growing, ever-demanding beast: big data.

More and more of our everyday experience relies on, and generates, data. The "cloud" is a bit of a hazy and purposefully innocuous term because all that data is housed in a physical space, if not multiple spaces. And just like their counterparts in the manufacturing sectors, data network suppliers and stewards are adapting to rapidly changing needs and expectations. Regional data centers are cropping up further out from metropolitan areas, often on new-construction campuses that boast greater energy efficiency and improved systems for HVAC, security, and fire-suppression - all crucial elements for a facilities that keep unthinkable amounts of sensitive data flowing 24/7/365.

Industrial market trends tend to play out over longer stretches of time compared to faster-paced markets like retail. No doubt the industrial market is still in flux and reacting to pandemic effects. But the industrial market also tends to react with smaller swings - the logistics of bringing industrial properties to market require greater investments of time, logistics, construction and engineering, not to mention capital. We think the changes we've been seeing will soon become familiar features of a market poised for years of steady, healthy growth.