Can remarkable US industrial revenues continue?

The emergence of e-commerce and low interest rates accelerated industrial demand in the 2010s. And again, when digital consumer spending surged during the COVID-19 pandemic in 2020-21. Now that digital purchases have normalized from pandemic highs and industrial leasing has cooled in response to interest rate escalation, what’s the outlook for industrial demand? Here are three key takeaways from our research. (Read our analysis in Industrial demand: What we expect.)

1. Interest rate easing should spur demand and revenue rebound.

The past two years of higher interest rates have caused many tenants to pause their leasing plans, which along with record supply levels caused revenues to slip. But the 50-basis point cut of the fed funds rate on September 18 should bring short-term rates lower and reinforce the recent fall of long-term rates. Reduced rates should lead to renewed industrial demand. But rates will probably not fall to the lows following the Global Financial Crisis or trough levels in response to the pandemic.

2. Generational shopping patterns point to long-term e-commerce growth.

US retail e-commerce sales are projected by Moody’s Analytics to double from 2023 levels in a little more than a decade. (See chart below.) This robust e-commerce outlook reflects generational differences in digital shopping behaviors and the related demographic trends. E-commerce activity requires more warehouse space than storefront retail activity, making e-commerce growth particularly important to industrial demand.

3. Growth might not reach pre-pandemic highs; choosing the right markets is important.

This recovery will not likely match the strength of the late-2010s or the pandemic surge. Market selection will play a larger role in the search for higher investment returns. The difference of average revenue growth between top-third markets versus bottom-third markets has been three percentage points or higher historically, based on five-year rolling periods going back to 2001.¹ For this reason, choosing markets and assets that can deliver higher property income growth will become more important for investors seeking above-average investment returns. 

Read our entire analysis in Industrial demand: What we expect.