The Southern California industrial market is well positioned toweather the economic storm set off by the global pandemic. Headinginto the current market dislocation, the industrial sector had lowvacancy and a limited new construction pipeline—and limited landfor new construction. Now, the pandemic has catalyzed a new wave ofecommerce activity, accelerating trends by a decade or more, someare estimating, and a lack of liquidity for new construction."Bottom line, industrial will come through this year stronger thanbefore," Kurt Strasmann, regional industrialmarket leader at CBRE, tells GlobeSt.com.

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New ecommerce activity in particular will play a role inindustrial resilience through the next recovery cycle. "Theemergence of ecommerce plays in perfectly for industrial demand onmultiple levels, both cold storage and typical online sales fromfulfillment as well as onshoring," says Strasmann.

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Social distancing and stay-at-home orders have only served toincrease online shopping. "While much of the data is preliminary, avariety of market observers have captured a striking increase ine-commerce, accelerating in mid-March as the nation's retailersbegan to close their doors," says Strasmann. "An acceleratedadoption of e-commerce could persist past the immediate crisis ifconsumers grow more comfortable buying a wider range of goods fromonline retailers. Already, many e-commerce companies are operatingat a greater capacity than peak holiday season with the biggestplayer in the field having announced plans to expand theirworkforce by 100,000 workers nationwide."

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This crisis is certainly unique, but the former recession mightalso provide a lens into industrial performance during a severeeconomic dislocation. "The financial crisis had a dramatic negativeimpact on key industries that support the regional industrialinventory: yearly port volumes at the peak of the recession in 2009were down 25% compared 2007, and manufacturing & distributionemployment declined by 111,200 throughout the GFC. Vacancy ratesfor regional industrial assets peaked at 5.01% in Q4 2009, andasking rates declined 26%," says Strasmann. "While it took nearly 8years for rates to return to previous highs, the strikingly lowvacancy highlights the sector's relatively stable demand base."

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While the market is certainly well positioned to weather thisstorm, no industry is immune to the effects of this pandemic. Thepandemic's impact on global trade will certainly affect theindustrial market, particularly in Southern California, which ishome to the largest port system. "The spread of the coronavirus andassociated economic contagion is having dramatic, immediate effectson global trade. The IMF estimates that global trade will declineby 11% in 2020, slightly less than the 14% decline seen in 2009,"says Strasmann. "The impact is already being felt locally: portvolumes are at their lowest level since 2009, declining 20% from2019. Between 10% and 15% of the regional warehouse inventory isport-related. However, the dislocation from a drop in globaltrade—while severe—may prove temporary: China's manufacturing hasalready begun to rebound and ship departures from China haveincreased."

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Kelsi Maree Borland

Kelsi Maree Borland is a freelance journalist and magazine writer based in Los Angeles, California. For more than 5 years, she has extensively reported on the commercial real estate industry, covering major deals across all commercial asset classes, investment strategy and capital markets trends, market commentary, economic trends and new technologies disrupting and revolutionizing the industry. Her work appears daily on GlobeSt.com and regularly in Real Estate Forum Magazine. As a magazine writer, she covers lifestyle and travel trends. Her work has appeared in Angeleno, Los Angeles Magazine, Travel and Leisure and more.