How E-commerce Changed in 2020 (And What That Means for Real Estate)
As the pandemic temporarily shuttered brick and mortar stores and forced people to spend more time in their homes than ever, online shopping reached historic highs in 2020. E-commerce grew by 44% over 2019, reaching $861.12 billion in online sales. In response to 2020’s changes on individual behaviors and the world, industrial real estate must change to adapt. But how? In an interview for our podcast, we sat down with Ohad Porat, CIO of Faropoint industrial investment firm, to find out. Here are four main takeaways from our conversation:
Last mile warehouses
For years, the pressure to ship more products has been growing. With more people buying everyday items online in 2020, that trend is hotter than ever. Many companies are implementing advanced last-mile distribution and warehouse strategies to respond to the demand for fast shipping. However, according to Porat, fewer last-mile warehouses are being built in recent years. It can also be more difficult to deal with local zoning laws for construction, making last mile warehouses less common. Porat points out that the demand for last-mile strategies without sufficient warehouses to back it up creates a depressed supply chain, which investors could see as an opportunity.
Amazon keeps winning
Amazon absolutely slayed the competition in 2020, the e-commerce giant represented nearly a third—31.4% to be exact—of all U.S. ecommerce sales growth last year. According to Porat, 9% of all new construction industrial properties worldwide are occupied by Amazon. But that’s not bad news for other warehouses; there’s enough growth to go around. Porat says that Amazon is an innovator, leading the way for other companies to grow behind them.
Covid’s market impact
As work from home models became the norm, many investors previously interested in office spaces are turning their attention to industrial real estate instead. And for good reason. Here’s how Ohad explains the growth: “The trajectory was to have about 27-28% of consumption being done by e-commerce by 2030, now it’s about 39% because of Covid…As retail tenants are looking to downsize, and get released from leases and out of buildings, we see industrial tenants trying to get in, increase their footprints, and do more business.”
China and onshoring
Tradewars with China have increased the movement towards onshoring, keeping more inventory on U.S. grounds. In 2020, Covid really punctuated the demand for onshoring, as fear-based spikes in shopping lead to many grocery store shelves to be out of necessities like toilet paper or bread. More onshoring means more demand for U.S. warehouse space.
Collection rates
Porat says collection rates help show how an investment holds out through a big event, in this case a pandemic, so there was a lot of attention on collection in 2020. Ultimately, Porat reveals in their portfolio there was no impact on collections on a general scale, even through a global pandemic that threatened to shatter the economy. This indicates industrial real estate is a very strong investment.
Overall, industrial real estate has been growing for a while, but 2020 really put the market over the edge. If you’re ready to make the leap into investing in industrial properties, Okapi can help you by streamlining the risk assessment process so you can make smarter deals, faster. Get in touch to learn more!
Other stats sources: DigitalCommerce360
