You may have heard that rents of industrial space have been on an upward trend recently and may wonder why this may be the case.
Let’s dive into the possible reasons why we are seeing the upward climb in terms of demand for industrial spaces as well as industrial rental rates recently.
Most of us are already familiar with the term ‘lockdown’ as the Covid-19 virus was spreading too quickly resulting in necessary lockdowns around the globe. Whenever there is a lockdown, certain businesses may need to cease operations resulting in supply chain disruptions as companies are unable to operate.
While most countries have already lifted the lockdowns as majority of the population have been vaccinated, China continues to impose lockdowns which are part of the country’s covid-zero strategy to control the spread of the covid-19 virus.
Considering that China is a major supplier and also major manufacturer of many products used globally, naturally supply chain will be disrupted whenever China goes into a state of lockdown.
Apart from the lockdowns, there is also an ongoing Russia-Ukraine war which further adds to the supply chain woes. This is so as certain flights would have to be redirected to avoid the air space of the two countries so as to stay out of the war zone.
By redirecting flights, travelling time for cargo may be increased resulting in more supply chain disruptions.
Besides the lockdowns and ongoing war, the Covid-19 pandemic also resulted in countries around the world announcing rounds and rounds of economic stimulus which circulated more money in the markets. With so much money going around in the markets as a form of aid, coupled with the deprivation of certain goods and services due to lockdowns, demand for goods and services also increased as the lockdowns were lifted.
With greater demand for goods and services, naturally there will be increased demand for industrial spaces resulting in an upward trend in terms of rents for industrial spaces.
Inflation & Costs of Holding Industrial Properties
As most of us would have already felt, inflation is an ongoing concern globally. As rounds of economic stimulus circulated more money in the markets, demand for goods and services also increased. The ongoing Russia-Ukraine war also resulted in increase in oil prices due to the fact that Russia is a major producer of crude oil. Increase in crude oil prices affects almost every segment of the market as crude oil is essential for transportation whether by air, sea or land.
With inflation as a concern in the US as well as countries around the world, many countries are now on a mission to curb inflation by increasing interest rates. As interest rates increase, costs of borrowing go up which in turn affects cost of holding any types of properties whether industrial, commercial or residential. With an increase in costs of holding, naturally landlords would be pressured to increase rents resulting in an increase in industrial space rental rates. Apart from industrial properties, this is also true for residential properties as well as any other types of properties.
Also, with all these factors adding up in recent times, it is no real surprise why industrial space rental rates have been on an upward trend.