Industrial Market Remains Resilient

by | 09 December 2020

The effects of COVID-19 have drastically changed how many Americans are conducting business in 2020, and we’re sure to see continued market reactions beyond the pandemic. Nearly every business has had to adapt its safety protocols to adhere to best practices in order to weather the storm.

Industries that have been hit hard include office and retail product. Many small mom-and-pop stores have been forced to shut down due to quarantine restrictions. There has been a rise in subleases in the office sector because some companies are realizing they are efficient, even during the “work from home” era. Out of the three main industries, it’s clear that the industrial industry has been the most resilient and agile during the pandemic.

For the most part, manufacturing and distribution companies have not skipped a beat due to the rise in e-commerce activity that stemmed from consumer wariness of in-person shopping. Nearshoring is proving to be another reason why the industrial market has remained strong. For years, U.S. companies have relied upon China for operations because of the lower costs of doing business there. However, in the wake of the coronavirus, businesses may be forced to rethink their supply chain. Also, the new trade deal between the United States, Mexico and Canada (USMCA) has taken effect, and industrial companies may see it to be more advantageous to do business in North America rather than China moving forward.

Stable per-square-foot pricing is another reason the industrial market has remained resilient during Q3. If you are an owner-user looking for a “steal of a deal,” odds are you haven’t found one due to prices remaining steady, even during a pandemic. This is due to the high demand for industrial owner-user buildings in the Minneapolis-St. Paul market, and the corresponding low supply is causing premium prices. This is reflected in the numbers: with a metro-area vacancy rate of 5.89%, it’s clear that tenants are still looking for their ideal space.

While numbers have remained constant, conditions are far from identical from February 2020. Industrial users have had to adjust rapidly over the past six months. Whether by implementing social distancing protocols in the workplace or introducing new cleaning requirements, many companies have been able to continue operations with caution. These are not the only changes. According to a survey performed from McKinsey & Company, a third of companies in a survey reported accelerating the digitization of their supply chains, half have accelerated customer channel digitization and two-thirds have accelerated adopting artificial intelligence and automation.

While manufacturing and e-commerce companies have provided the industrial sector with a strong base, other industrial subsectors such as medical device and construction will look to rebound as we weather the storm and hope to see clear skies sometime in 2021.