Why industrial real estate prospects may weaken?


Oxford Economics, one of the world’s independent global advisory firms, providing reports, forecasts and analytical tools on 200 countries, releases a report on industrial real estate market.

Here are the key points:

  • While industrial real estate performance is expected to remain strong in the near term, longer-term prospects are more uncertain. Three specific factors – shifts in e-commerce trends, technological advancement, and decarbonisation policies – will have a profound effect on industrial real estate from 2030 onwards.
  • Near-term volatility aside, we anticipate that online sales growth will stabilise in most economies in the medium term – halfway through our 25-year forecast period in some instances – taking some of the steam out of e-commerce industrial demand.
  • Advancements in automation and robots are being integrated into industrial environments. As new technologies are incorporated into the sector, we expect the efficiencies gained will further reduce aggregate demand for industrial real estate. A continued focus on new, high-specification facilities by occupiers will result in increased capital expenditures by owners and lead potentially to greater obsolescence and depreciation risks.
  • Given its lower energy intensity and shallower decarbonisation pathway, industrial – and warehouse and logistics spaces in particular – is best positioned for net-zero targets, relative to other sectors. As investors begin to rebalance their portfolios to consider ESG and climate change-oriented commitments, we can expect increased interest in these aspects of the sector.

“Industrial real estate returns across the globe have been robust over the last decade and are currently forecast to significantly outperform in the near term. However, medium- to long-term prospects are far more uncertain. Structural shifts in e-commerce, technology and decarbonisation policies are likely to result in markedly lower levels of aggregate demand, an increase in capital expenditure requirements, and subsequently weaker returns. While these factors are likely to vary in intensity by city, country, and region, their potential impact will need to be incorporated into long-term investment strategies,” said Christopher Babatope, Associate Director at Oxford Economics.

Click here to read the full report.