Report: Changing trade patterns a boon to U.S. industrial real estate

Shifting global trade patterns will benefit U.S. industrial real estate markets, especially as companies move some production away from China and increasingly look for ways to diversify their supply strategies, according to a recent market report from Los Angeles-based real estate services and investment firm CBRE.

Among the most notable trends, according to the report, is the adoption of a “China-Plus-One” strategy, in which companies shift some of their production from China to lower cost export countries in the region. Vietnam is positioned to benefit most from the shift, due to its proximity to China, fast-growing economy, and network of 114 seaports, the CBRE researchers said. Vietnam posted the largest year-over-year trade growth with the United States in 2019 compared to other Southeast Asian countries and is “one of the few countries in the world with positive trade growth with the U.S. through the first half of 2020,” the researchers also said.

The shift to Vietnam largely benefits West Coast ports, but interior air-hub and East Coast ports benefit as well. A broader expansion to secondary markets in Asia is fueling growth for logistics markets in the Southeast in particular, as organizations take advantage of lower cost Asian routes to the U.S. East Coast via the Suez Canal; recent improvements to Southeast ports’ intermodal capabilities are also helping to drive the trend.

“This will be a demand driver for Southeast logistics markets including Charleston, Savannah, Atlanta, Greenville, S.C., and Florida’s I-4 Corridor,” according to the report.

Nearshoring may benefit North American real estate markets as well, fueling demand for warehouse and distribution center space. Although the report says it’s still unclear how much secondary sourcing in or near the United States will occur, they said Mexico is likely to benefit from manufacturing growth due to its low-cost labor, proximity to U.S. markets, and 14 trade agreements, including the recently enacted United States-Mexico-Canada Agreement (USMCA). Such growth, combined with accelerating ecommerce activity and other trends, is likely to spur demand for logistics space in markets nationwide.

“This diversification of sourcing, along with rising domestic transportation costs and an increase in online sales, will require more distribution centers throughout the country and will be another catalyst for robust industrial real estate demand for the foreseeable future,” the researchers said.