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Space Race: Why Warehouses are a Solid Investment in a Changing Economy

TL;DR: The creative class economy has become more about stuff.

In the world of real estate investment, will high rises and towers sprouting up in major cities, warehouses seem like a less-than-sexy option. But amid a shifting economy, the sector has shown surprising growth and return on investment over the last few years, enough that many in the real estate industry are giving these buildings a second look. Steady demand for these spaces, due in part to the increasing need for server farms and distribution centers for online commerce, has led the Urban Land Institute (ULI) to place the industrials category at the top of the commercial property sector for investment and development prospects in 2016.

The creative class economy has also become more about stuff, according to the ULI's report on emerging trend for 2016: retail sales has grown faster than GDP since the recession, and real (inflation-adjusted) output from US industry is 85 percent greater now than in 1987. Many analysts quoted in the study said companies and investors want warehouses (even foreign investors), and one consultant even urged investors to take a closer look at industrial in the new economy.

"Warehouse facilities for the new economy are the new retail," he says. "They bypass the retail channel and go directly to consumer from warehouse."

The trend towards more storage space, especially the newer one million-square-foot behemoths being built for giants like Amazon, reflect rapid changes in retail and logistics (consider that Amazon, which has more warehouse space than UPS or FedEx, added 17 million square feet of distribution space last year, the equivalent of more than six Freedom Tower, and may be building out its own shipping company). These companies are building spoke-hub systems that will require more smaller-scale spaces near urban centers, which may create demand in suburban and urban areas. The ULI report notes that the midwest, particularly the Chicago/Wisconsin border, has seen lots of new construction and potential.

Warehouses are not only becoming a better investment, but they're becoming much more complicated and technically adept as well. According to a Wall Street Journal article, increasing demand for same-day delivery and the complexity of orders, has led to massive investment in new technology, including automation and robotics, as well as taller designs for distribution centers. It seems space, even in a cavernous warehouse, is at a premium.

The Top 10 Emerging Trends Shaping Real Estate in 2016 [Curbed]