It’s been well documented how in a few short months, COVID-19 has been a boon to much of the industrial real estate sector, even as it decimates other asset classes. Though new data suggests the situation on the ground hasn’t been universally opportune for all industrial properties, the outlook still remains positive.
A review of the $350 billion Paycheck Protection (PPP) Loan program by Avison Young makes clear that industrial users have been just as susceptible to the impacts of the pandemic as other businesses. Yes, e-commerce has seen fresh activity, capturing new consumers who turned to online shopping during the lockdown, but many non-essential industrial businesses have struggled.
Poring through data from the Small Business Administration, Avison Young found that manufacturers accounted for $53.7 billion in PPP loans. And despite an uptick in online sales, the transportation and warehousing sector received $16.9 billion. These segments combined for nearly 14 percent of all PPP loan approvals across the major industries.
To be fair, industrial users have garnered a smaller portion of the pie than other asset classes.
“A majority of the real-estate-related loans were likely used for sectors that have been hit the hardest during the pandemic, such as the multifamily, hospitality and office sectors,” said Erik Foster, an Avison Young principal and head of industrial capital markets.
Looking ahead, the further expansion of e-commerce cannot be ignored. Demand for industrial distribution space has already increased and reading the tea leaves suggest that this demand will only grow. According to new CBRE research, this may lead to between 200 and 220 million square feet of new product just in Chicago by 2025.
“Chicago will continue to be a critical logistics hub for the Midwest and surrounding regions,” said Chris Zubel, senior managing director for CBRE. “As consumer patterns change and more goods are purchased online, we will see considerably more warehouse space added to our inventory to support the growth of e-commerce.”
According to CBRE research, every $1 billion in new sales among e-commerce companies culminates in an additional 1.25 million square feet of demand for warehouse space nationwide. As Chicago has become an incredibly import regional logistics hub—the metro’s 776-million square feet of warehouse space is already one of the largest industrial footprints in the U.S.—Chicago is poised to benefit from this new demand.
Chicago’s geography makes it an integral link in the nation’s supply chain, connecting west coast ports with many central and east coast destinations. Five years from now the Chicago region could have as much as 1.5 billion square feet of industrial warehouse inventory if these projections play out and demand scales as expected.