Ari Rastegar is CEO of Rastegar Property Company, a vertically integrated real estate company with a focus on value-oriented real estate.
America’s manufacturing sector is poised for a comeback, creating a long-awaited opportunity for those investing in industrial real estate. Industrial real estate as an asset class has been among the most resilient during the pandemic, and, with the global economy prepared to catch up from delays, investors in the space are sure to benefit. Increasingly businesses are announcing plans for new or expanded domestic facilities, as we’ve recently seen with Tesla building a $1 billion Gigafactory in Austin, TX, creating opportunities for ancillary industrial developments in the region. There’s also an increased need for distribution centers to meet the current e-commerce demand needs, which also bodes well for those in the space.
America, once the manufacturing powerhouse worldwide, has yielded its manufacturing command to other foreign powers over the decades, but as of late, there’s momentum for it to regain a stronger position. Beyond companies like Tesla realizing the value of having production facilities on American soil, the current semiconductor shortage affecting industries like automotive and consumer electronics has led the Biden administration to sign an executive order for an immediate, 100-day federal review of supply chain vulnerabilities, with the likely result being further incentives for domestic manufacturers.
We also saw the lack of resiliency in the U.S. manufacturing space underscored by the pandemic, when the U.S. was unable to produce a sufficient number of ventilators and even face masks. But issues with the lack of U.S. manufacturing power spread much further than the challenges faced during the pandemic. Across a variety of sectors, bolstering manufacturing in the U.S. is being discussed — as seen with President Biden’s initiatives as well as bipartisan legislation — so investors should eye markets and regions that offer attractive incentives to manufacturers looking to build or expand facilities.
Property conversions to industrial real estate will also become increasingly popular and something landlords and property owners should consider. On the manufacturers’ side, there has also been increased interest in converted facilities and less opposition to leasing properties. With rapidly increasing demand, companies need new spaces quickly so they’re more open to adding or moving facilities on a shorter timeline, making a conversion property or leased property much more attractive. With many malls closing their doors following the pandemic, these vacant properties sprawled across the U.S. make ideal properties for conversions and one asset savvy investors should consider targeting. We are already beginning to see this trend begin, slowly but surely, in the U.S. and in conjunction with overcoming hurdles to retail-to-warehouse conversions.
It’s only logical to see the connection between increased U.S. manufacturing and the increased demand for industrial real estate, particularly for warehouses and distribution centers. These property types are already in high demand for the e-commerce industry as well, making the market positively red hot with interest from investors and prospective tenants. This anticipated boom began under the pandemic and looks to increase dramatically over the next decade.
Real estate investors should pay attention to where companies are moving, or plan to move, into new facilities and focus their strategy accordingly. As we see manufacturing return to the U.S. and an increase in plant and other industrial properties being built, we can predict that various other real estate asset classes are set to benefit from the boom. Even those real estate investors focused on other asset classes besides industrial should keep an eye on the market to capitalize on regions that may benefit from job growth. Just as in the past, heavy industrial presence across the U.S. is once again poised to become the centerpiece of towns and cities across the country, bringing with it a resurgence of jobs and capital.