Labor Shortages Haven't Stalled Industrial Real Estate Investment Growth

Demand for industrial real estate dropped in the third quarter of 2022 but remained a much sought-after investment target. 

But according to the managing director of St. Louis-based private equity real estate firm ElmTree Funds, the economy dictates that some of that investment activity should be tied to an available labor pool. 

“We look at a variety of statistics such as rental rates and vacancies, but we’re also taking a long-term view of the potential labor availability and those markets with low labor costs,” MaCauley Studdard told Benzinga.

ElmTree says its focus on labor results from the significant demand growth within the industrial sector, contributing to a “severe shortage of workers” needed to operate industrial facilities.

According to the U.S. Chamber of Commerce, the manufacturing industry lost roughly 1.4 million jobs at the onset of the pandemic. Since then, the industry has struggled to hire entry-level and skilled workers. 

Despite labor obstacles, commercial real estate professional service and investment management company Colliers International Group Inc. is still bullish on investment in the space, with some moderation.

“Despite headwinds, the U.S. industrial sector remains one of the top-performing commercial real estate property types,” a new Colliers study reported. “Core markets continue to see healthy occupancy gains and record development signifies the confidence both owners and occupiers have for industrial product. New development records are expected in 2023 as projects continue to break ground. However, economic uncertainty remains, and demand is expected to moderate over the next 12 months.”

The Colliers report targeted 23 metro markets expected to post occupancy gains greater than 5 million square feet in the third quarter, with emerging markets such as Savannah, Georgia; Charleston, South Carolina; Reno, Nevada; and Salt Lake City showing the most significant levels of growth. Savannah alone posted 11.4 million square feet of occupancy gains. 

Industrial growth in the Southeast has yet to escape the strategic targets and acquisitions of investment firms like ElmTree. 

“The Southeast is a heavy focus for us, as they have good population growth and good demos,” Studdard said. “Lower living costs are attracting a lot more employees to the labor market, and we’re seeing a lot of growth in areas including Charlotte and Greenville/Spartanburg (SC).”

Location and available labor is not the only factor driving industrial investment decisions, with supply chain concerns and inflation also weighing heavily on property selection heading into 2023, according to Studdard. 

“Next year, we expect to see more build-to-suit activity on new construction, with additional financing options becoming somewhat more difficult. The corporations we work with are looking for mid- to long-term supply chain expansions as they move to higher inventory levels,” he said. “We don’t expect the high rate of industrial leasing growth we saw in 2021, but the trends remain positive heading into 2023.”

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