Sean Dalfen, President and CEO of Dalfen Industrial, is overseeing the firm’s investment strategies in industrial real estate, which plays a crucial role in the supply chain. While it may not have the glamour of other real estate sectors, its importance cannot be overstated as almost every product we use has passed through an industrial facility. With the surge in e-commerce accelerated by the COVID-19 pandemic, there has been a drastic increase in demand for fulfillment centers and last-mile delivery hubs. Economic factors such as tariffs, shipping costs, and the political climate have influenced where and how companies choose to manufacture and distribute their products, making it essential to understand these demand drivers in navigating the current landscape.
E-commerce has emerged as a major driver of industrial real estate demand, constituting between 15% and 25% of all retail sales, with net absorption of e-commerce in the industrial sector reaching 31% during the pandemic. Boston Consulting Group’s research projects that e-commerce will capture 41% of all retail sales by 2027. The growth of e-commerce has led to an increased need for fulfillment centers and last-mile delivery hubs, driving up demand and prices in prime locations. Companies need strategically located industrial real estate for efficient last-mile delivery processes, highlighting the importance of being close to the customer for profitability.
Supply chain interruptions during the COVID-19 pandemic emphasized the vulnerabilities in the supply chain for e-commerce, leading to companies reevaluating their manufacturing locations to mitigate risks. The automotive industry, for instance, faced delays due to a shortage of semiconductor chips produced in limited locations globally, prompting the need for more resilient and flexible supply chains. Nearshoring and onshoring trends have emerged as viable options, with companies relocating manufacturing closer to their home market or bringing production back to their home country to reduce risk associated with long supply chains and dependence on foreign manufacturing.
The shift towards nearshoring and onshoring since the pandemic has been driven by the need for more resilient supply chains, with Mexico becoming an attractive option for U.S. companies to diversify their supply chains. Tariffs on imports further incentivize companies to consider nearshoring and onshoring strategies to avoid additional costs. Although nearshoring and onshoring present challenges such as higher labor costs and the need to invest in competitively priced industrial real estate, the trend is gaining momentum as companies strive to mitigate future risks and gain more control over the production process.
The industrial real estate sector faces challenges with capital market constraints, as interest rates have risen, tightening lending from big and regional banks. Regional banks have a significant portion of their balance sheets tied up in commercial real estate loans, making it difficult for them to extend new credit as defaults increase. Rising interest rates have also impacted financing costs, making new projects financially unfeasible and slowing down the rate of new industrial development, despite robust demand. Developers and investors must navigate these challenges by exploring alternative financing options and adapting their investment strategies to align with the changing lending environment.
Forbes Business Council, the foremost growth and networking organization for business owners and leaders, provides a platform for industry leaders such as Sean Dalfen to share insights and expertise. To qualify for membership in the Forbes Business Council, business owners and leaders must meet certain criteria and demonstrate their expertise in their respective fields. With the ongoing demands and changes in the industrial real estate sector, staying informed and connected through organizations like the Forbes Business Council can provide valuable resources and networking opportunities for industry professionals.
