Beyond E-Commerce: Trends Driving Industrial & Logistics Development

A few topics that were addressed:

• Why are there so many investment opportunities in real estate industrials and logistics right now?
• Types of logistics investments and what makes certain ones so appealing
• Specific markets within logistics
• Who is the end buyer for these projects?
• What is the outlook for this sector? How much opportunity lies ahead?

Why is there so much opportunity in this space?

Dominic began the conversation providing more detail on how the industry, as a whole, has shifted over the past year. “Looking at this through a broad scope, there’s been a major change in supply chain networks. The original model was focused around minimizing transportation costs from a warehouse to an individual retail store network, with some importing and exporting mixed in, as well. Now we’re seeing a shift from supply chains serving store networks to serving population zones, which has driven a decentralization from warehousing.”

Regardless of if you’re involved in the industry, you’ve probably seen a large increase in e-commerce, especially over the past year. Whether it’s Amazon, major carriers like UPS or FedEx, Uber Eats, Instacart, whoever- those goods come from somewhere. From the big picture perspective, e-commerce is the main driver for the recent spike in success. Let’s narrow in on a few factors beyond the general topic…

1. The Need for Space
   As the e-commerce sector grows, the size and the scope of inventory follows suit. Users need more space. Dominic added that “for every 1 billion dollars in e-commerce sales, 1.25 million square feet is needed to satisfy that demand”.
2. The Need for Modern Logistics Buildings
   He continued, saying “There’s really been a flight to quality in industrial buildings. A brand new industrial building is a little different from a five to ten year old building, and a lot different than a twenty year old one.” You see this issue in things like clear height, dock equipment, truck circulation, trailer/car parking, etc. To move the amount of product that is being stored, with more workers in the warehouse, these outdated buildings don’t fit the needs of modern users.
3. The Need for Developers
   Nick provided his perspective from a development standpoint: “Today, as these buildings get built bigger, that requires more equity capital; this means bigger check sizes and bigger investors. This falls out of the range of the traditional development network for these projects, and a lot of these traditional developers don’t want to take on the larger ones either. So there’s a unique opportunity unfolding. We need more supply and bigger/more modern facilities, and there’s a vacuum of capital willing to do that.”

Who is the end buyer?

The buyer is someone who wants core exposure to logistics real estate and what that effectively works out to be is REITs looking for a dividend yield, pension funds looking for annual returns, and sovereign wealth funds who like industrials and are wanting to get their money into the US. The beauty of owning industrial long-term is that it’s a very low Cap X product. You NOI is typically what you walk away with, especially if it’s a brand new building.

Overall outlook for industrial and logistics

“Everything that was happening before COVID is happening after COVID and twice or three times as fast.”

Industrial real estate is a sector that has performed extremely well during the past year, owing a lot of its success to e-commerce and supply chain shifts. If the rate of growth continues as it has over the past years, this will drive demand for nearly 250 million square feet per year. Some markets may grow more than others, but the key is to “skate where the puck is going, not to where it’s coming from.”