Industrial and logistics real estate growth will remain strong throughout this year, although it probably will not progress at quite the same torrid pace it has enjoyed in recent years, according to recent predictions by industry professionals.
“Over the next couple of years, we expect the North American industrial market to remain one of the leading product types to watch,” declares the global commercial real estate services firm of Cushman & Wakefield.
The forecast for North American industrial absorption in 2020-21 is a healthy 459.9 million square feet (msf). New supply – which finally surpassed demand in 2019 – will continue to do so over the next two years, the company predicts.
“Economic indicators, with strong links to industrial fundamentals, point to continued growth in both 2020 and 2021,” C&W observes.
It cited robust consumer spending supported by stable inflation, wage growth and low unemployment, which should bode well for industrial demand.
Another trend driving growth of warehouse and distribution center space stems from structural changes wrought by ecommerce, the company says, including ever-shortening delivery windows.
CBRE believes that 2020 could be a pivotal year for the U.S. commercial real estate industry, with supply starting to surpass demand in some sectors.
“Resilient economic activity, strong property fundamentals, low interest rates and the relative attractiveness of real estate as an asset class are the primary factors supporting our outlook,” the worldwide CRE firm states in its forecast.
“Barring any unforeseen risks, we assess that a recession will be avoided, thanks in large part to the stimulatory effects of the Fed’s rate cuts in 2019.”
CBRE also believes that industrial and logistics absorption gains will be limited this year, with available supply outpacing demand by 20 million to 30 million square feet. However, at the same time rents are expected to rise by 5%.
In spite of some softening in the market, overall fundamentals will remain strong because of continued ecommerce penetration and demand for logistics services and infill properties, CBRE says.
“Although there are potential trade-related risks, resilient consumer spending will buoy the industrial and logistics market and mitigate any tariff effects on major hubs relying on port activity.”
Global warehouse giant Prologis anticipates net absorption of between 250 msf and 275 msf of completions in 2020, which will keep the vacancy rate historically low at roughly 4.6% to 4.7%.
Warehouse giant Prologis believes the U.S. logistics real estate market is poised for yet another year of expansion for several good reasons.
“Cyclical and structural growth drivers are incentivizing customers to invest in logistics capabilities to generate revenue and achieve operational efficiencies,” it says. “Supply is responding to years of strong demand, robust market rent growth and tight operating conditions.”
As operations become more complex for occupiers, this will create fresh opportunities for well- positioned third-party logistics providers, it says.
Last year, supply increased in locations with lower barriers to entry, while the development pipeline expanded as a response to strong investor interest in logistics real estate, Prologis points out.
Supply continues to remain concentrated in markets with lower barriers to new development, it adds. Locations currently at risk of oversupply are said to include Central Pennsylvania and the outlying submarkets in Houston and Atlanta.
At the same time, U.S. coastal metropolis markets drove 8% of market rental growth during 2019. Overall, completions increased to 275 msf in 2019, up 3% from 262 msf in 2018. Supply is expected to total 275 msf in 2020, largely because the volume of projects breaking ground stabilized in 2019.
With demand constrained by available capacity, net absorption is closely linked to new supply, and Prologis anticipates both will rise slightly in 2020.
The supply and demand imbalance is primarily the result of what the company calls “frictional vacancy,” which occurs in situations where higher levels of new supply take time to lease up.
The national vacancy rate is expected to remain roughly stable in the near term, keeping the operating environment challenging for customers with upcoming requirements.
Prologis says the continued diversity in demand and sustained low vacancy will make advanced planning a top priority for logistics warehouse customers.
<h3>OSHA Focuses On Fatalities</h3>
The Occupational Safety and Health Administration has voiced concern over the increasing number of certain kinds of workplace fatalities.
In December, the Bureau of Labor Statistics released its annual Census of Fatal Occupational Injuries Report, which revealed that a total of 5,250 workers died from work-related injuries during 2018, which is up 2% from the 2017 total of 5,147.
However, BLS also reported that the overall fatal injury rate was unchanged in 2018 at 3.5 per 100,000 full-time equivalent workers.
Transportation incidents remained the most frequent type of fatal event at 2,080, accounting for 40% of all work-related fatalities. Not surprisingly, driver- sales workers and truck drivers had the most fatalities of any broad occupation group at 966. Among all detailed occupations, heavy and tractor- trailer truck drivers had the most fatalities at 831.
Deaths involving contact with objects and equipment increased 13% (from 695 to 786), driven by a 39% increase in workers caught in running equipment or machinery and a 17% increase in workers struck by falling objects or equipment.
“Tragically, unintentional overdoses at work increased by 12% — the sixth consecutive annual increase and a reflection of the broader opioid crisis that our nation is facing,” OSHA says.
Unintentional drug overdoses at work rose by 12% — the sixth consecutive annual increase and a reflection of the broader opioid crisis that our nation is facing, the agency notes.
To combat this problem, President Trump declared the opioid epidemic a National Health Emergency. OSHA also teamed with the National Safety Council on the release of a toolkit to help employers address opioid abuse in their workplaces and support workers in recovery.
Suicide at work also increased by 11% in 2018, but work-related fatal falls from heights dropped 14%, marking this category’s lowest total since 2013.
<h3>Where Does the Toll Money Go? </h3>
As tolling becomes more popular as a way to finance roads, bridges and tunnels, the question ultimately arises – where does all that money go?
Toll revenue increased more than 72% over the last decade compared to inflation growth of just 16.9%. The American Transportation Research Institute released new research that documents the collection and distribution of $14.7 billion in toll revenue, representing 82% of all U.S. toll collections.
ATRI’s research found that for the 21 major toll systems analyzed, more than $14.7 billion in revenue was collected, but nearly 50% was diverted to uses other than construction and maintenance.
This excess revenue is diverted in a number of ways, based upon the individual agency or state that supervises the toll entity, the researchers note.
“The magnitude of diversion and the lack of standard practice with regard to revenue diversion speaks to the disjointed control under which toll entities operate,” ATRI observes.
This is in stark contrast to the supervision and public policy standards that dominate the use of federal fuel tax revenue and the supervision of the expenditures of these resources by agencies such as the Federal Highway Administration.
“If toll facilities are to be operated as a profit center for the given governmental or private entity, then one must question on what basis the service is priced and what level of profit is appropriate and reasonable as a government monopoly or exclusive provider of a given travel route,” ATRI concludes.
“It is clear from this research that highway funding mechanisms that return our tax investments to highways are far superior to tolling,” commented ATRI board member Darren Hawkins, chief executive officer of YRC Worldwide.
“We need greater oversight and transparency to ensure that the billions of dollars paid by our industry goes back into the roads and bridges that generate the revenue.”