NEW YORK: The rise of e-commerce and the logistical nightmare of the coronavirus pandemic has driven up warehouse demand in the United States, a trend that hasn’t escaped investment funds that are betting heavily on this market.
“It’s a crazy battle to find a suitable location for clients, to reveal a property for sale,” says Michael Schipper, a Realtor Blau & Berg, who specializes in commercial real estate in New Jersey and New York.
The free space rate has been steadily declining for a year and a half and is now 3.4%, despite the delivery of more than eight million square meters of new warehouses in the first quarter of 2022, according to real estate firm Jones. Lang LaSalle .
Demand is such that, in just six years, purchase prices have doubled by 3 or 4 in the area covered by Michael Schipper, in northern New Jersey. For rental, the average price is up 22% in the U.S. in two years, according to Beroe.
“The logistics and distribution of e-commerce are the two drivers of this need for space in the US market,” says Beroe, noting that demand has outstripped supply for 18 months.
In addition, unlike traditional warehousing sites, preparing orders placed online requires technologically advanced warehouses, emphasizes Mark Manduka, chief investment officer at GXO, which provides logistics solutions for businesses.
Beroe explains that this equipment, which requires a huge investment, allows “to improve site efficiency and speed up warehouse activities to meet the demand for same-day delivery.”
The new standard for instant delivery, invented by Amazon, imposed itself on the main competitors of the Seattle giant, who had to align themselves.
Behind the Seattle giant, “many companies have accelerated the development of their online offerings,” assures Mark Manduka. “They are the ones who drive the demand for warehouses in the last kilometer”, “the last mile”, that is, who make it possible to serve the final destination directly.
The tyranny of instant delivery has forced many brands to double their stocking locations to get closer to customers, especially in urban areas where real estate was already very expensive.
The pandemic spurred a movement that was already running, sending e-commerce revenues up 56% between early 2020 and early 2022.
Another effect of Covid is the significant logistical chaos caused by health restrictions and restrictions. “We’ve had containers in the wrong places, we’ve had supply problems, and recently we’ve had excess stocks,” Mark Manduka recalls.
To reduce this risk, he says, many companies are “looking for production sites closer” to their markets, “which increases warehouse demand.”
“We’re seeing a jump in companies increasing their inventory to ease supply issues,” and so we’re looking for additional storage space, John Gray, second-in-command at investment firm Blackstone, said in April.
Blackstone has invested heavily in this sector, and currently owns $170 billion in warehouses. She is now competing with Prologis, who is ranked number one in the world.
Other private equity giants, such as KKR, Carlyle, Apollo or Sweden’s EQT, have bought sites to ride the “warehousing” (warehousing) wave.
“The outlook for the warehouse market is positive in the long term, but we will have to take a break,” warns Michael Schipper, who sees tightening credit conditions, currently underway, could play a role. “You cannot continue on this path indefinitely.”
Among the signs of a potential correction is Amazon’s decision to sublet or renegotiate the lease of more than 2.7 million square meters of warehouse.
“You will see demand fall and rents stop rising at this rate,” Ward Fitzgerald, CEO of EQT Exeter, an EQT subsidiary, warned in the Wall Street Journal.
“The question,” according to Michael Schipper, “is how much and for how long. Nobody has an answer.”