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E-Commerce Growth Drives Industrial Demand
Historically, the manufacturing and retail sectors have driven demand for industrial space. Though, more recently, e-commerce has fueled the industrial market largely due to the changing buying habits of consumers. Essentially, people are buying more and more things online and the need for high-quality industrial space is the direct response to the accelerated growth in e-commerce. Pre-pandemic, about 11% of all retail sales were online, during we saw it go well over 25%, and now things are currently settling in the 20% range. Experts predict within the next five years to seven years, we’ll be close to 35% of everything we buy will be online. This metric has been a driving force for industrial demand not only in the Austin market but markets nationwide.
Due to the increasing ways in which consumers can shop and receive online purchases, the traditional supply chain has had to readjust and has driven demand for industrial space to unseen levels. Experts found that e-commerce companies have accounted for 28.2% of all industrial absorption from 2016 through 2019, and that number increased even more to approximately 40% from 2020 through 2021 as Covid-19 shifted consumer shopping patterns. Additionally, businesses are striving to be as close as possible to the end user, which has made the Austin market a hotspot for industrial development. Due to tremendous population growth and e-commerce sales expected to grow 15% by the end of the year, we anticipate continued increase in space demand here in Austin.
Furthermore, as market conditions are anticipated to remain at historically tight levels, despite the plethora of new supply expected to deliver in 2023, e-commerce tenants will be pushed to focus on new Class A developments, which boast premium asking rates. E-commerce tenants are projected to continue to account for between 35-40% of industrial space demand as consumer shopping habits continue to trend upwards.
With e-commerce leading the demand in industrial space here in Austin and record-level construction underway totaling 16.1 msf, Austin has the potential to nearly double in size over the next five years. In essence, the expanded need for e-commerce space and overall industrial demand will continue to keep the pipeline flowing for several more years.
*Research information is sourced from CoStar data compiled through ECR from custom reports using existing, non-owner occupied properties above 10,000 SF.
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