Welcome back to the “Clarion Calls: Inside Commercial Real Estate" video series.
In the previous video, we introduced five themes we believe are driving trends within commercial real estate and guiding our strategic investment targets: Demographics, Innovation, Shifting Globalization, Housing, and Resiliency.
Today, we'll take a deeper look at one of the property types we believe most benefits from these themes — Industrial and Logistics.
More than 20 years ago, Clarion's Research team identified signs that globalized supply chains and budding e-commerce would transform how companies produced, stored, and distributed goods.
Clarion expected those changes would lead to a major shift in the sector, driving the need for a new generation of technologically-advanced distribution centers, warehouses, and related building types.
Over the past 15 years, Industrial has been the best performing property sector in the U.S. and Clarion has grown into one of the top private industrial real estate platforms in the country.
We believe industrial warehouse properties will continue to be attractive investments that offer several compelling attributes, including: durable cash flow, stable supply/demand fundamentals, and the potential for long-term growth.
Four of the macro themes we're following support our continued strategic investment in this sector.
Let's start with Demographics.
The combined cohorts of Millennials and Gen Z are technologically proficient and wield growing purchasing power as they enter their prime earning and spending years.
Both generations have grown up in a digital age and they are comfortable consuming goods both online and in-store, creating a significant tailwind for the sector.
Tenant demand from third-party logistics firms and retailers is becoming increasingly diversified by metro area as they seek to fulfill this demand.
Industrial product near next-generation cities is particularly attractive. These cities offer diverse economies, favorable costs of living and business climates, strong quality of life, and good job growth. Two examples are Atlanta and Dallas.
The next theme supporting this sector is Innovation.
According to the U.S. Census Bureau, U.S. consumers are spending more than ever and the growth of e-commerce as a percentage of retail sales continues to rise.
In fact, studies show that for every $1 billion dollars in new e-commerce revenue generated, 1 million square feet of additional warehouse space is needed.
Looking forward, we believe e-commerce will continue to gain market share and bolster demand for the Industrial sector as occupiers continue expanding, diversifying, and optimizing their supply chains to meet the needs of a modern, omni-channel network.
Shifting Globalization Patterns are also positively impacting the U.S. Industrial sector.
A newfound need for diversifying supply chains, and a push to bring final product assembly closer to the end consumer, has led to increased investment in manufacturing and R&D facilities.
At the same time, manufacturing is returning to the United States. With the emergence of new technologies and automation, the U.S. is undergoing a powerful transformation and creating new domestic manufacturing hubs throughout the country.
A great example of this is the robust demand outlook for industrial product in Phoenix, which has been driven by large investments in semiconductor and chip manufacturing.
We believe markets like: El Paso, Dallas-Fort Worth, Kansas City, and Southern California are well-positioned to benefit from U.S. / Mexico trade and take advantage of this nearshoring trend.
We believe Resiliency is also impacting the Industrial sector.
A significant portion of current industrial inventory is functionally obsolete. This means it does not meet the evolving needs of today's tenants, which are increasingly focused on automation, technology, and enhancements to employee work environments.
In fact, nearly 60% of current U.S. warehouse stock was built before 1980.
As new product is brought to market, Clarion is focused on investing in modern, functional assets that will be able to accommodate these changing demands and address tenant needs well into the future.
Overall, Clarion views the Industrial sector as a high-priority target for investment over the long term.
We believe extensive judgment and deep experience are critical in identifying outperforming assets that will best meet the specialized needs of tenants — today and in the future.