There have been countless reports of the effect that e-commerce has on the industrial demand of our country. We looked at 3 factors that contribute to that and found the link between e-commerce and industrial demand may be vastly overstated.
The increase in online sales is real and noticeable as evidenced by the sharp increase in non-retail store sales. This trend will likely continue as we see no sign of the internet disappearing.
However, when we look at the amount of money the American consumer devotes to items that drive industrial demand (i.e. – those that are stored in warehouse), it is a relatively small amount of their disposable income (under 8% by our estimation).
Finally, when we speculate that e-commerce should greatly increase the occupied industrial square footage per capita, (occupied SF should outpace population growth by a wide margin) the data shows a very weak correlation.
Our belief is that the insatiable demand for industrial product by investors is built on a presumption that there is a strong correlation between the shift to e-commerce and demand. We feel the correlation is weak, at best, and actually negative in some geographic areas (Florida being one). An investment thesis built around e-commerce and online retail sales should focus on the major regional distribution hubs across the country, not secondary and tertiary markets.
This is NOT to say that demand for industrial space will go down or diminish in any way. Quite the opposite in fact; demand for industrial will continue to grow as does the population of the US and their ability to spend. Smaller, more in-fill warehouses will likely be utilized, providing opportunities for smaller investors in secondary/tertiary markets.
Those investors and owners who manage and operate their properties effectively will be in the best position to capture the increased demand from population growth and a strong economy. The American consumer will continue to spend their income on items that are stored in warehouses. It does not matter to the investor if that item is bought at a store, or online. The proof is in the numbers.
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