Experts discussed the economic outlook for 2022 and national trends impacting the Midwest’s commercial real estate industry at the recent Commercial Real Estate and Economic Forecast hosted by the Commercial Association of REALTORS® Wisconsin (CARW). KC Conway, Certified Commercial Investment Member Institute economist, shared his insights on the current state of the economy.
Inflation influence
Record industrial real estate absorption rates resulted in low industrial vacancy rates during much of 2021. This trend will likely continue well into 2022 and beyond as the national inflation rate continues to increase. Experts expect inflation to continue for the next two to three years, which will delay significant directly financed construction projects. Developer-led projects and speculative builds are expected to help companies meet customer demand. Companies are more likely to lease a facility as an operational cost than to build.
This trend is already evident in the Madison area. Permitting has been approved for over 1 million square feet of speculative industrial space for 2022. Also, a 3.4 million-square-foot distribution project east of Madison received approval. That project is led by a developer who will lease the new constructed space to a large retailer. Until inflation slows, we will continue to see developer-led projects throughout the U.S.
Supply chain shift
Another significant sign for industrial growth in the Midwest is the shift from a west-to-east supply chain to a south-to-north supply chain. Delays due to imported goods stuck in west coast ports such as Long Beach, California, were widely reported in 2021. The southern and east coast ports did not experience any delays.
The U.S. will begin to see a shift of goods coming in from the east and south up to the Midwest. As these goods and products arrive, companies will need additional room to store parts and products, which creates new opportunities for industrial warehousing and production space. This will positively impact the industrial real estate landscape in the Midwest.
Experts predict this increase in industrial use to continue for the next three years as inflation levels out and the supply chain shifts. The shift will have a tremendous impact on our industrial sector. Again, developers will lead these warehouses and production facilities as high inflation rates make companies less inclined to build their own facilities.
A perfect example is Prologis, one of the world’s largest developers with properties all over the world. The developer currently has roughly 1 billion square feet of warehouse space in the U.S. – at almost 0% vacancy. Prologis, along with their competitors, will actively seek good land and opportunities to add to their portfolio.
Workforce
The second concern facing customers today is workforce. The good news for the Midwest is that, while other regions of the country experienced a population decrease, our population actually grew 3% to 5%. Wisconsin was the 13th top U-Haul destination in 2021, which demonstrates people moved to the state. A vast majority of these new residents came from Illinois, the only Midwest state to lose population. The ability to attract new workers and produce qualified graduates from our two- and four-year systems will continue to put Iowa and Wisconsin on the top of the list for major projects.
Overall, industrial real estate growth is poised to have another great year in the Midwest and should continue to be a leader for the next two to three years.
Economic outlook: 2022 Midwest expectations
Alliant Energy Economic Development
Published on February 15, 2022
About Alliant Energy Economic Development
Our experienced team helps businesses streamline processes, mitigate risk and become operational faster.
Learn how we can help you locate a site in Iowa or Wisconsin and customize your options.
Recent Stories
Fighting food insecurity in Beloit
The Caritas Community Resource Center partners with Alliant Energy to get people the food they need.
Read More
A roadmap for energy delivery
Resource plans are a roadmap for reliable, efficient energy delivery. But what exactly does this mean?
Read More
The four cornerstones of high-performance buildings
What makes a building high performance?
Read More