Midwest Remains Attractive Target for Industrial Investment

Most everything in our lives, and in Commercial Real Estate in particular, was affected by the COVID-19 pandemic. Retail took a nosedive and has begun a modest recovery; office remains floating in a sort of no-man’s land. But for the industrial sector, life continued almost as normal; certainly, there was no slowdown or abrupt halt in space demanded.
ndustrial Sector Hindered by Labor and Supply Chain Shortages

Demand for industrial space is insatiable. Though supply continues to increase, the market seems unable to provide enough space for what is demanded.[1] On the other hand, the industrial sector is limited by labor and supply shortages. Companies simply cannot find the necessary labor to meet their requirements, and disasters like the Ever Given getting stuck in the Suez Canal disrupt the supply chain for months.

As we well know, the pandemic forced everyone home. This sent a vast majority of commerce online, as people turned to Amazon and other providers to deliver goods to their door, saving themselves the risk of going to a store in person. This major shift towards e-commerce, an already existing trend due to changing consumer preference, forced companies like FedEx and UPS to seek industrial space to use as fulfillment centers. According to Commercial Property Executive, every $1 billion of additional e-commerce sales requires an additional 1 million SF of industrial space.[2] Q2 2020 saw a record 43.7% growth YOY in e-commerce sales. That growth continued to skyrocket, finally settling to only 9.3% YOY in Q2 2021, from $193.6 billion to $211.7 billion.[3] Since the pandemic began, tens of millions of square feet of industrial space have been demanded, driving up prices, tightening supply, and causing a construction boom.  As demand for office space disappeared and leases went unrenewed, investment capital turned towards industrial space, which by-and-large continued to operate as normal throughout the pandemic. While people worked from home, stores shut down, and our favorite restaurants turned to carry-out only, the industrial sector continued to grow, propping up the economy as all else shut down.

The effect of the shift towards e-commerce is most evident in the fact that 60% of the demand for industrial space is for fulfillment centers to meet orders.[4] Other space usage, such as retail/wholesale, cold storage for food and beverage, manufacturing, automobile, tires and parts, construction, and medical, accounts for the rest of demand, but does not come close to the need for more fulfillment space to meet the onslaught of online orders and supply chain requirements. The first half of 2021 saw a 41.2% increase YOY in industrial transactions at a value of $27.8 billion.[5] Landlords remain disciplined and are maintaining a tight supply, which in turn drives prices up for industrial space. New construction seems unable to keep up with the demand for construction, and big markets are hit the hardest. A lot of this problem stems from supply chain issues, with the global supply sector hamstrung by the sudden stand-still in the movements of goods. Companies in markets like Chicago, San Fransisco, LA, and New York are looking elsewhere to meet industrial space needs, avoiding their cramped home markets. Indiana happens to be one of the prime locations that businesses are targeting, combining low prices with generous incentives for relocating business here. Though asking rents increased during the pandemic, they remain significantly lower than prices in major metropolitan areas.[6]

Our West Michigan market saw the effects of the e-commerce boom, with the creation of new warehousing and distribution facilities across the region. Rents remain low even though “hot” spaces – 40,000-50,000 SF – are being sold weeks and even days into being put on the market.

In NE Indiana, comprised of Fort Wayne and surrounding areas, demand is outpacing supply, and new spec buildings are leasing up before construction is even finished. Increased rents and high construction costs are not deterring growth; one gourmet popcorn company is relocating from the Chicago area to New Haven, leaving a crowded, expensive metro area for the benefits of a cheaper market.

Central Indiana has seen more square feet delivered to the industrial sector in the past six months than ever before, with a total of 8.7 million SF scheduled to be delivered in 2021. Demand is not slowing for existing space and new construction, generally for warehouse and distribution capabilities. Big names such as Amazon and Walmart are getting space in this market; Amazon is signing a 530,400 SF lease in southern Indianapolis for a distribution center. Indiana’s friendly regulations invite large corporations such as these to plant their flags in our state.

North Central Indiana, home to the RV capital of the world, Elkhart, saw one of its best quarters ever in sales volume. Though the RV industry suffered along with many others on supply chain issues, demand continued to be strong for additional space. Monthly RV shipments are up big in all months YOY thus far in 2021, signaling a strong and steady local industry.

Across Indiana and Western Michigan, land is being purchased as quickly as it is offered, to be converted to industrial usage. Out of state developers are fleeing higher prices and targeting land in Central Indiana, resulting in an increase in land values. Friendly Indiana regulations only increase the attractiveness of our cheap markets, and higher demand has yet to cause too significant of an increasing in prices. Indiana is by-and-large a tertiary market, and usually follows behind national trends a couple of years. Expect growth to continue as companies pick up on the national growth as well as the explosion of local industries such as marine and RV components. Once the labor and supply challenges are met, barriers to growth will be minimal, and operations will proceed more smoothly.


Written by Brendan Bradley.

Thank you to Matt Wetzel for contributing.


[1] Industrial Real Estate Is Booming, With No End in Sight – Commercial Property Executive (commercialsearch.com)

[2] Industrial Real Estate Is Booming, With No End in Sight – Commercial Property Executive (commercialsearch.com)

[3] US ecommerce sales rise 9.3% in Q2 2021 | Digital Commerce 360

[4] Industrial Real Estate Is Booming, With No End in Sight – Commercial Property Executive (commercialsearch.com)

[5] Top 5 Markets for Industrial Transactions – Commercial Property Executive (commercialsearch.com)

[6] Bradley Company Market Reports

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