As 2018 comes to a close, all signs point to another strong year for industrial real estate. Essential indicators for industrial demand were solid in 2018, including distribution industry job growth. In December 2018, the three industries directly related to industrial real estate hit all-time highs for total employed in the U.S., including truck transportation (1.5 million), couriers and messengers (790,000) and warehousing and storage (1.06 million). These industries reached new peaks because of the continued growth in e-commerce sales in the U.S. which will remain a top demand driver for industrial real estate in 2019. Online sales finished Q3 2018—the most recent data available—at $30.9 billion in the U.S., a 14.5% increase compared with Q3 2017. For the year, e-commerce sales represented 11.1% of non-auto related retail sales. While Q4 2018 e-commerce sales have not been released, online sales over the holiday season are projected to be record breaking with internet sales surging 26% on Black Friday alone.
Transportation of goods across the U.S. was strong in 2018. Rail traffic across the U.S. continued to grow, with total rail traffic up 4.8% in 2018. Seaports continue to boom with loaded inbound container volumes up 6% compared with the same time a year ago. The North American Cass Freight Index, which measures overall freight volume based on billings, saw shipments increase a whopping 7.9% in 2018. While this is an impressive mark, the index does state in its annual review that the rate of increase is a direct result of a large amount of imports by companies looking to stock up prior to tariffs taking effect.
Trade policies along with weakening economies in Europe and China do bear watching in 2019. While all industrial occupier types are susceptible to these headwinds, U.S. manufacturers could be the most susceptible to a downturn if these trends continue and/or worsen. Because of trade related worries and a weakening outlook for European and Chinese economies, the U.S. ISM manufacturing survey dropped to 54.1% at year-end. While this represented a more than 5 percentage point decline, the number remained in expansionary territory. Communications from Washington point to a willingness to negotiate a trade deal with China, and because of this, manufacturing estimates did increase in January 2019 to 56.6%.
Overall, most indicators point to continued strong industrial real estate fundamentals in 2019. E-commerce sales will continue to grow as will the need for occupiers to expand their supply chain capabilities to service this growth. The U.S. economy also remains strong, with robust job fundamentals to finish 2018. While all these are positive and will lead to more quarters of positive absorption, the global economic and trade headwinds do bear watching in the coming year.