Coupled with strong consumer spending, the rise in housing construction is creating an incredible rebound of the U.S. industrial real estate sector, and experts agree that this trend is likely to continue. The growth in e-commerce originally turned around the industrial sector after the recession, but its continued improvement is due to the rise in housing permits, starts, and completions in the past two years.
Building permits in May rose about 25% from the previous year, and housing completions increased 14.5% as well. According to the National Association of Realtors, pending home sales rose for the fourth straight month, reaching their highest level in nine years.
How does this affect industrial real estate? According to Josh Harris, a professor of real estate at the University of Central Florida and a Fellow at the National Association of Industrial and Office Properties, the housing structure will create demand for big-box industrial space, specifically for building products and materials and light industrial space.
“Many construction tradesmen operate out of warehouse industrial parks, such as your sub-contractors, your plumbers and cabinet makers,” Harris says. “Home building will be a big industrial sector this year, especially with the weakening of sectors such as the oil and gas industry.
David Egan, America’s head of industrial research for real estate services firm CBRE, agrees that the industrial sector is set to strengthen as home-related retail chains and furniture stores need to store their goods in large warehouses. He also says that demand for light industrial building, which makes up about 60% of the national industrial market, which feel after e-commerce boom, is surging back again.
The light industrial sub-sector could be a great place for investors to take interest in. “I think this segment will grow rapidly in the next year and a half, there’s a lot of runway for rents to grow and availability to shrink. And there’s not a lot of new development. You get in now and pick the right locations, you’ll see an increase in value just due to rent increases alone,” says Egan.