Optimism is the hallmark of the burgeoning logistics sector, as both fundamentals and valuations remain resilient and high despite the pandemic. But a recent report from Green Street cautions that even small changes in the supply and demand driven by e-commerce could throw a wrench in the sector. 

A variety of factors play into this analysis, from consolidation and the cost of transporting goods (both of which impact warehouse size and location) to the availability of labor to man warehouses and distribution centers. Increased manufacturing in the US, buttressed by tech advancements like automation and 3-D printing, may also shorten supply chains, and advancements in self-driving technologies could have unknown, longer-term impacts on both location strategy and overall warehouse demand.

The Green Street report also notes that increasing interest in the sector among investors, taken together with shorter construction cycles, could lead to overbuilding and result in significantly lower rent growth. And as demand grows for bigger, more modernized distribution centers, “physical obsolescence” remains a risk, Green Street says.

Finally, there’s a ceiling for just about everything in CRE, and the skyrocketing e-commerce sector is no exception. If e-commerce sales peak earlier than expected, demand will slumpand this risk is compounded by an eventual consumer return post-COVID to experiences and services.

Despite these risks, investors are increasingly bullish on the sector. A recent Colliers International report shows that industrial absorption outpaced new deliveries last year, with inventory increasing 2.4% in 2020. Notable recent transactions include KKR’s acquisition of an $800 million 100-property industrial portfolio; Crow Holdings partnership with Allianz Real Estate to acquire a 49% stake in a 19-asset, 6.1 million-square-foot US industrial portfolio developed by Crow Holdings; and Rexford Industrial Realty’s acquisition of an 18-asset industrial property portfolio for $154.6 million.