How to Analyze Industrial Real Estate Supply and Demand
Forecasting industrial real estate supply and demand is a crucial endeavor for commercial real estate professionals. For instance, developers planning to construct a new industrial park need to evaluate whether there is adequate demand to sustain the new development. The prevailing supply and demand conditions significantly influence market rents and vacancy rates, which in turn affect property valuations and ultimately impact the owner’s rate of return. In this article, we’ll explore how to forecast industrial real estate supply and demand using the Orlando, FL metro area as a case study.
Population Trends and Industrial Real Estate Demand
According to recent data from the U.S. Census Bureau and the Orlando Economic Development Commission, the total population of the Orlando metro area was estimated at 2,387,138 in 2016. Between 2015 and 2016, the population of the Orlando metro area grew by 2.6%, making it one of the fastest-growing regions in the United States. The Orlando Economic Development Commission estimates that the region has experienced growth equating to a gain of approximately 138 new residents each day since 2000. This population surge, largely driven by both tourism and migration, fuels a robust demand for industrial facilities, particularly in e-commerce and logistics.
Orlando International Airport ranks as the eighth busiest in the United States and serves as a central transportation hub for significant highway traffic throughout the state, further boosting the demand for industrial real estate in the region.
Economic Trends and Industrial Real Estate Demand
The employment data gathered by the Bureau of Labor Statistics illustrates that economic growth within the Orlando metro area is a primary driver of the observed population trends. Job growth in Orlando from 2015 to 2016 surpassed the national average by a substantial margin. This upward trend in employment and population is expected to persist unless disrupted by unforeseen external factors or natural calamities.
Moreover, the employment growth rate in the Orlando metro area actually outpaced that of the population growth rate, indicating that an increasing number of new workers are expected to relocate to the area to sustain this economic momentum. Below are key statistics regarding employment in the Orlando-Kissimmee-Sanford metropolitan statistical area (MSA):
- Total Employment in the U.S. (2016): 141,870,066
- Total Employment in the Orlando-Kissimmee-Sanford MSA (2016): 1,157,536
- Employment Growth (2015-2016): 46,844 (4.22% growth)
In comparison, the total U.S. employment growth during the same period was 1.71%, highlighting the Orlando metro area’s rapid expansion.
However, the Orlando metro area is densely populated, which presents a unique challenge for industrial businesses seeking space. These businesses require locations that are not only near vital transportation hubs but are also situated on large tracts of land available at relatively lower rents. The soaring demand for real estate—driven by tourism, retail, residential, and office space needs—contributes to increasing property prices in the region.
The appraisal concept of “highest and best use” emphasizes that land must be utilized in a manner that maximizes its value. This notion aligns with economic models of urban growth, which also support the idea that real estate should adapt to meet the prevailing demand within its market.
Conclusion
In conclusion, analyzing the supply and demand dynamics of industrial real estate in the Orlando metro area reveals significant insights. With strong population growth driven by migration and a booming economy characterized by robust job growth, the industrial sector in Orlando is likely to remain in high demand. Understanding these trends allows developers and stakeholders to make informed decisions about real estate investments and developments, ultimately driving the success of their projects in this vibrant market.
