E-commerce
How E-Commerce Is Shaping Supply Chains and Driving Demand for Logistics Real Estate
While the pandemic-era surge in online shopping has moderated, e-commerce remains one of the most powerful forces influencing logistics real estate. Consumer purchasing habits have fundamentally changed, with digital channels now firmly embedded in how people shop. As retailers, manufacturers and logistics providers adapt to rising expectations for speed, convenience and flexibility, the need for modern fulfillment infrastructure continues to expand. The result is a logistics landscape that is becoming increasingly sophisticated, with occupiers reevaluating distribution networks to better serve a digital-first economy. Logistics Has Become Critical to the E-Commerce Experience E-commerce has matured from a fast-growing retail channel into a foundational component of global commerce. According to a recent McKinsey survey, 57% of consumers rank digital as their primary purchasing channel—almost double the level reported in 2022. For retailers, this shift has significant supply chain implications. Fulfillment networks are being redesigned to support broader product assortments, deeper inventory levels, direct-to-consumer shipping, returns processing, and value-added services such as product assembly and customization. Real estate strategy is also becoming more closely tied to service levels. Facilities positioned near major population centers can help shorten delivery windows and improve the efficiency of last-mile logistics—the final stage of the delivery process, when goods move from a distribution facility to the end customer. As consumers continue to expect faster, more reliable delivery, this part of the supply chain has become a key competitive differentiator. Nearshoring Is Providing an Additional Tailwind Companies are increasingly pursuing nearshoring and onshoring initiatives to improve supply chain resilience, reduce transportation costs and bring production closer to end markets. These strategies gained momentum following years of supply chain disruptions and continue to be influenced by evolving trade policies and geopolitical considerations. Unlike last-mile strategies, which focus on the final movement of goods, nearshoring is reshaping the upstream side of the supply chain. By moving production closer to end markets, companies can improve operational control, reduce exposure to disruption and better align inventory with customer demand. In the U.S., changes in foreign trade policies and tariff structures have further encouraged companies to diversify sourcing strategies and establish a stronger domestic presence. Cross-border e-commerce companies, in particular, are expanding their U.S. logistics footprints to help future-proof operations amid potential regulatory changes. As new manufacturing facilities come online, the need for supporting warehouse, distribution and transportation infrastructure is expected to increase, creating additional opportunities within industrial and logistics real estate. A New Era for Logistics Real Estate It’s projected that U.S. e-commerce penetration—the percentage of total retail sales that occurs online—will rise from approximately 24% in 2025 to 30% by 2030. This growth has meaningful implications for logistics real estate demand, as every one percentage-point increase in e-commerce's share of retail sales translates into approximately 50 million to 70 million square feet of industrial space absorption. Beyond sheer volume growth, e-commerce is also changing the type of industrial and logistics space occupiers require. To support greater supply chain flexibility, companies are increasingly seeking modern facilities with higher clear heights, advanced automation capabilities and strong transportation connectivity. Looking Ahead E-commerce is no longer just changing how consumers shop—it is reshaping how companies build, operate and future-proof their supply chains. Well-located, modern facilities with the flexibility to support evolving distribution strategies are likely to remain in high demand, underscoring the long-term value of logistics assets in a digital-first economy.
ICSC Las Vegas Preview
ICSC Las Vegas, one of the largest commercial real estate gatherings, will again convene the industry’s leading professionals and retailers next week. Over 30,000 attendees will gather for networking, deal-making and insights into how the retail real estate industry will fare amid a volatile and uncertain economic environment. Tariffs, shifts in consumer sentiment and sale-leaseback opportunities will be among the biggest topics discussed at the conference. Outlined below is an overview of each. Tariffs add pressure and uncertainty for retailers Uncertainty surrounding tariffs is expected to have a substantial impact on the retail real estate industry. The National Retail Federation announced it expects the growth of U.S. retail sales to slow down this year due to consumer anxiety and inflation, with an outsized impact on smaller retailers and certain industries including textiles and electronics. While the long-term impact of tariff policies is unclear, retailers ultimately will have to determine how much of the additional costs they can absorb versus passing on to consumers. These decisions could have significant impacts on retailers’ balance sheets and ability to remain operational, affecting overall investment in the sector. Consumer sentiment shifts will impact investor demand Shifting consumer preferences continue to present both opportunities and challenges for retailers. Uncertainty surrounding the future of the economy has made consumers more budget conscious and focused on necessities. According to the U.S. Bureau of Economic Analysis, essential goods account for 65% of consumer spending. As a result, retailers will likely continue to show interest in grocery-anchored shopping centers, which continue to remain among the best-performing retail property types. E-commerce also continues to redefine retail. As more consumers shift their spending online, retailers like Macy’s are consolidating locations and shrinking their footprints. For investors seeking stability, this means targeting markets with strong population and job growth—where retail assets are most likely to perform well over the long term. Sale-leasebacks remain a viable financing option Despite economic uncertainty, the retail sale-leaseback market continues to grow—thanks to its clear advantages over traditional debt. By unlocking the full market value of their real estate, retailers can reinvest proceeds into their core business and drive stronger returns. Sale-leasebacks also provide long-term capital with no refinancing risk and typically without the restrictive debt covenants or balloon payments that come with conventional financing. In today’s climate, where liquidity and balance sheet flexibility are paramount, that kind of stability is more valuable than ever.
Keeping Up with Industrial in a ‘Wildcard’ Year
Uncertainty around interest rates, slowed transactional volumes, and a future of unknowns has left investors in the industrial sector watching trends closely. “This year has been a bit of a wildcard,” says Jason Patterson, senior vice president of investments at W. P. Carey. “People constantly speculate about what the future holds regarding interest rates, and we also saw a bit of softening on the lease demand side at the end of 2023.” As uncertainty persists, understanding a few key trends can help the industrial sector track what’s next as it moves closer to a new normal. Cost of Capital Challenges Persist As 2024 began, forecasts predicted multiple interest rate cuts; however, the Fed has held rates unchanged to date. Recently, it adjusted the previous forecast from three expected rate cuts in 2024 to one, against the backdrop of persistent inflationary concerns. Volatility around rates has also led to investor hesitancy in making long-term commitments, further impacting transaction volumes. “There is also a long and continuous trend toward e-commerce,” says Patterson. “In the near term, there has been a bit of volatility due to overbuilding in certain markets, and there is a bit more vacancy that needs to be absorbed. These shorter blips are relative to what seems to be a long-term trend toward higher value in industrial real estate.” Despite ongoing challenges, opportunities still exist for the industrial market, and understanding some existing tailwinds can help investors capitalize on these. Shift to Onshoring Onshoring is a continued tailwind for the industrial sector, especially on the manufacturing side according to Patterson. “It seems there is bipartisan agreement around a movement to onshore, as sentiments trend toward increased American manufacturing.” Upticks in high-tech chip manufacturing and transitioning the auto fleet to electric are also drivers of long-term industrial demand, says Patterson. While electric cars accounted for only 2% of vehicles in 2018, that number jumped to roughly 18% of all vehicles sold in 2023. A push toward more sustainable vehicle technologies could further drive long-term industrial demand, but Patterson cautions that continued growth could depend on the outcome of the election. Strategic Positioning and Access to Capital When operating in a market with many unknowns, a good place to start is focusing on what’s within your control, suggests Patterson. “Factors such as interest rates are out of the hands of most folks,” says Patterson. “We focus on sticking to our competitive advantage, which is underwriting sub-investment-grade long-term lease opportunities.” Agility is also key, as is working with partners who can support the market’s need for increased flexibility. According to Patterson, “This is a time when having a reputation for strong performance and access to capital is very valuable. At W. P. Carey, we are well positioned to execute with significant liquidity and capital, enabling us to be nimble in the current environment.”
Is the Net Lease Industrial Market Still "Red Hot"?
The single-tenant net lease industrial market has been on fire in recent years. Buoyed by e-commerce growth, industrial properties were seeing record low cap rates and record high competition from investors following the COVID-19 pandemic. However, the sector has not been immune to recent macro-economic volatility. Search -In fact, quarterly transaction volume fell more than 46 percent in the first quarter of 2023, making it the slowest quarter reported by the net lease industrial sector since mid-2017. Does this mean that the industrial market is losing its steam? While some investors are waiting on the sidelines, trends including onshoring, supply/demand dynamics and rising interest in sale-leasebacks will help bolster the industrial market in the long term. Here’s why: Impact of onshoring Supply chain issues during the pandemic have been a major catalyst for onshoring in the industrial market. Having manufacturing facilities overseas meant accessibility was limited (or in some cases, completely restricted), which had a major impact on companies’ ability to get their product to consumers. As a result, more companies have focused on bringing their facilities back to the U.S., which has only been supported by lower labor-related costs, better automation technology and an accessible highway and interstate system. Technology companies have largely been leading the onshoring charge, with companies like Intel, Micron and Texas Instruments committing to building large manufacturing plants in the U.S. This has led to a steady rise in demand for warehouse and industrial spaces from U.S. companies, with notable growth seen in the Southeast. Supply/demand dynamics After several years of growth post-COVID, warehouse construction is on the decline due to higher interest rates, a slower economy and Amazon’s reduced spend on new facilities for 2023. 6,700 warehouses are expected to be built in 2023, a 35% reduction compared to the 10,000 built in 2022. Despite this, e-commerce growth is expected to keep demand for warehouse space strong, with rents anticipated to increase over the next year. The good news for investors is that cap rates are also on the rise – Search -up 35 basis points from record lows in 2022. As the buyer-seller price gap continues to close, more investors will likely jump back into the market, strengthening transaction volume in 2024. Uptick in sale-leaseback interest The volatility in the capital markets environment has certainly been challenging for companies, with cost of capital rising considerably given increasing interest rates. Alternative forms of financing such as sale-leasebacks have come to the forefront as companies look for ways to unlock capital. Sale-leasebacks offer a “naturally accretive” funding source, particularly for companies that own fungible, mission-critical real estate and are willing to sign a long-term lease. Industrial facilities have inherent criticality which makes them uniquely attractive to investors, making owners of these types of facilities great candidates for sale-leasebacks. While inflation is starting to cool, experts predict that the Fed won’t start cutting interest rates until 2024, which will encourage more industrial companies to pursue a sale-leaseback. With more opportunities likely coming to market and investors poised to execute (particularly all-equity buyers), we believe industrial will maintain its position as the “darling” of net lease for the foreseeable future.