During the past two years, investors have flocked to industrial real estate. Urgent demand, high rent growth and low vacancy proved to be a recipe for success for the commercial real estate asset, recording historical growth and sales numbers. Now, as the world moves into a post-COVID-19 era, the sector still looks to be top dog, but will that change?

As markets across the country ramped up development, consumer trends started to change. E-commerce dominance slowed, pre-leasing stalled and big-box tenants abandoned expansion plans. What does this all mean for industrial real estate, and what should investors look out for?

The king of CRE

Industrial real estate throughout the U.S. performed strongly in 2021 and continued that success in 2022. Year-over-year rent growth is 11.6% and vacancy 4% as of September 2022. Demand for properties is still healthy and developers are keeping pace with demand in most major markets.

The concerns of some investors sprout from a shift of consumers pulling back from e-commerce and returning to brick-and-mortar retail. Online retailers dominated the retail space in 2020 and 2021, but shoppers are excited to be back in person, craving a more personal experience after long periods of seclusion. This consumer shift caused a decline in the expansion of warehouse and fulfillment facilities.

Another reason investors are wary is the threat of a hard-landing recession as inflation continues and the stock market witnesses volatility. Lastly, purchasing power is down, making it more difficult to buy and lease since sale and rent prices are at record levels for industrial properties.

High-level leasing

Lease rates are more expensive than ever. As of late August 2022, new industrial leases were $1.45 more per square foot than leases already in place. The gap between the average lease, market rate, and leases signed within the last 12 months is also higher than ever. The current average lease rate for the past 12 months is $8.05 per square foot, whereas the average was $6 in July 2022.

The markets seeing the most leasing activity and year-over-year rent growth are port cities, as they offer proximity to major coastal shipping terminals. The top five metros are the Inland Empire with 8.7%, Boston with 8%, New Jersey with 7.8%, Los Angeles with 7%, and Orange County with 6.8%.

Building for the future

Because of deeply constricted supply, industrial projects couldn’t be built fast enough throughout 2021, leading to a robust pipeline in 2022 and the following years. There are currently 844 million square feet underway across the United States, 70% higher than development numbers before the pandemic.

Although demand for industrial has sustained and even strengthened in specific markets, some real estate experts predict that up to 90 million square feet built will not be leased within a year of completion. As of late 2022, 62% of properties under construction have not been leased. But as others raise concerns about overbuilding, others say that it is almost impossible to overbuild industrial assets because the market is so tight for supply, and the need is not going away.

Construction is only getting more expensive and complex, meaning it would be difficult to continue the level of development long-term. The industrial pipeline needs to stay stocked in a time of great demand and limited options.

What’s next for industrial?

There may be some skepticism surrounding the overwhelming construction of industrial facilities and climbing rent rates, but all in all, industrial is here to stay. Investors will continue to pour capital into the sector in hopes of continuing low vacancies and strong profits. Absorption rates are expected to moderate; however, vacancies will remain stable, securing industrial as a top investment.

Matt Kovesdy is associate vice president for industrial with the Cleveland office of Matthews Real Estate Investment Services. Jonah Yulish is senior associate for shopping centers with Matthews’ Cleveland office.

This holiday season is shaping up to be a happy one for retailers, with the number of shoppers hitting stores from Thanksgiving Day to Cyber Monday setting a new record.

The National Retail Federation said that 196.7 million people shopped in-person at retailers from Thanksgiving Day to Cyber Monday, Nov. 28. That’s the highest this figure has ever been.

Online sales boomed, too. Adobe Analytics reported that online shoppers spent a record $9.12 billion on Black Friday, the day after Thanksgiving. That figure is up from $8.92 billion in 2021 and $9.03 billion in 2020.

These record-setting numbers come despite the threat of rising interest rates and persistent inflation. Why the big numbers? That’s difficult to say, but consumers have continued to spend even as the prices of everything from groceries and gas to electronics, clothing and furniture continue to rise.

Big Day for Online Sales

The Black Friday online sales were particularly impressive. Adobe Analytics said that the online sales of electronics rose 221% on Black Friday when compared to an average day in October of this year. Two of the biggest sellers were Apple MacBooks and Apple watches, according to Adobe. Consumers also spent big on the Xbox Series X gaming console and video games such as FIFA 23 and Pokemon Scarlet.

Adobe predicted that online shoppers would spend an additional $4.52 billion on Saturday and $4.99 billion on Sunday of the holiday weekend. Adobe also predicted that online sales would soar to $11.2 billion on Cyber Monday.

In-person Shopping Strong, Too

The National Retail Federation did not track the amount of money that record-setting number of in-person shoppers spent over the Black Friday weekend. The trade association did say that it expects holiday sales to rise by 6% to 8% from last year. If this happens, consumers will have spent from $942.6 billion to $960.4 billion this holiday season.

Of course, some of the increase in spending must be attributed to high inflation: Consumers are paying more when they are buying holiday items this year.

“The Thanksgiving holiday shopping weekend is a tradition treasured by many American families,” said National Retail Federation president and chief executive officer Matthew Shay, in a written statement. “As inflationary pressures persist, consumers have responded by stretching their dollars in any way possible. Retailers have responded accordingly, offering shoppers a season of buying convenience, matching sales and promotions across online and in-store channels to accommodate their customers at each interaction.”

According to the National Retail Federation, the holiday shopping season runs from Nov. 1 through Dec. 32. The federation said that consumers spent an average of about $325 on holiday purchases from Thanksgiving Day through Cyber Monday. Last year, shoppers spent an average of $301.

Black Friday/Cyber Monday Sales Shatter Records

Another Black Friday in the books. Gone are the days, it seems, of waking up at 5 a.m. to get a jump on the day’s deals, but that doesn’t equal less activity. In fact, 2022 saw the highest numbers in a while.

The National Retail Federation estimated that 166 million people shopped from Thanksgiving through Monday, the highest estimate since 2017, but reports concerning consumers’ weekend spending vary.

The Sun Times reported that shoppers carried on as they usually would, without regard to inflation or a looming recession, many even increasing spending. Residents in Chicagoland have estimated they’ll spend around $719, compared to $580 in 2021.

And the holiday hype checks out—no pun intended.

The last few years have been strange, to say the least, but as we continue to regain a sense of normalcy this season, shoppers have taken advantage by starting early. The Sun Times and Accenture found that of 1,500 Americans, 45% admitted to starting to shop in August.

But the forward-thinking mentality isn’t limited to consumers. Proactive retailers also seized the opportunity to kick start their in-store deals weeks—even months—in advance, especially those in areas that have struggled to regain foot traffic post-pandemic, and the strategy has proven successful thus far.

Shoppers swarmed Chicagoland from Michigan Avenue to Old Orchard in Skokie to Woodfield Mall in Schaumburg, and many people reported it was the largest in-person turnout they’d seen in a while. More than 122.7 million people across the U.S. visited brick-and-mortar stores over the weekend, up 17% from 2021, according to the National Retail Federation.

Welcome news for businesses of all sizes. Mainstream chains like J. Crew, Neiman Marcus, and J.C. Penney were not spared from pandemic suffering, after all.

“It is important to note that while some may claim that retail sales gains are the result of higher prices, they must acknowledge the historic growth in consumers who are shopping in-store and online during the holiday weekend and into Cyber Monday,” said NRF President and CEO Matthew Shay. “It is consumer demand that is driving growth.”

The group predicted the rise of holiday sales by 5% YOY and retailers will pocket 6% to 8% more than in 2021. Nationwide spending in November and December will near $960 billion, according to the Sun Times.