Warehouse business catches fire, driven by pandemic, e-commerce

Warehouse business catches fire, driven by pandemic, e-commerce

Warehouse business catches fire, driven by pandemic, e-commerce

The rise of e-commerce and the logistical nightmare created by the Covid-19 pandemic has caused a surge in demand for storage space in the United States, and large investment funds have taken note.

“It’s been a tremendous struggle to find the right location for clients,” said Michael Schipper of Blau & Berg, a commercial real estate specialist in New Jersey and New York.

Available space has been steadily decreasing for a year and a half, and the vacancy rate is now 3.4%, even though developers delivered 90 million square feet of new warehouse space in the first three months of the year, according to commercial real estate company Jones Lang. LaSalle.

Demand is so strong that purchase prices have tripled or quadrupled in just six years in northern New Jersey.

Nationally, average rental costs have increased by 22% in two years, according to analytics firm Beroe.

“Demand for space from logistics and distribution activities driven by the e-commerce industry” is the main driver in the US market, according to Beroe, who notes that demand has outstripped supply for 18 months.

Also, unlike traditional warehouse locations, online order fulfillment requires technologically advanced warehouses, said Mark Manduca, chief investment officer at GXO, a supply chain management company.

Beroe said this equipment, which requires massive investment, allows companies to “improve warehouse efficiency and accelerate warehouse activities to meet same-day delivery demands.”

Pioneered by Amazon, other retailers have been forced to scramble to meet the new standard of immediate delivery set by the Seattle-based online giant.

In recent years, many of these companies have rapidly scaled up their own e-commerce efforts, Manduca said.

“These are the people who are really driving this demand for last-mile storage,” he said.

Demands for instant delivery have forced many sellers to purchase multiple storage locations to get closer to customers, particularly in urban areas where real estate was already expensive.

The coronavirus pandemic accelerated this trend as e-commerce sales increased by 56% between early 2020 and early 2022.

Warehouse space prices have increased, but commercial real estate executives warn they will not continue to rise Warehouse space prices have increased, but commercial real estate executives warn they will not continue to rise Photo: GETTY via AFP / SCOTT OLSON

Another effect of the pandemic was the logistical confusion caused by Covid lockdowns and health restrictions.

This revealed storage capacity “in the wrong place, supply chain issues and, more recently, inventory rebuilds that have almost surpassed to some extent,” Manduca said.

To address these problems, he says, many companies are “now looking at facilities closer to home, which naturally increases demand for storage,” he said.

Amid rising demand, private equity firm Blackstone has invested heavily in the sector and currently has $170 billion in warehouses. Now it rivals Prologis, the number one in the world.

“We are also seeing an increase in the number of corporations building up inventories to mitigate supply chain issues” and therefore are looking for additional storage space, Blackstone President Jon Gray said in April.

Other private equity giants such as KKR, Carlyle, Apollo or Sweden’s EQT have bought sites to ride the wave.

But Schipper cautions that while the warehousing industry “has a positive long-term trajectory, … I think we need to take a break.”

“You can’t run parabolic forever,” he said, noting that the current tightening of credit conditions could also play a role.

A sign of a potential fix coming: Amazon’s decision to sublease or re-lease 30 million square feet of warehouse space.

“You’re going to see demand for space go down and rental rates stop rising at the rate they’re going up. There’s just no way around it,” warned Ward Fitzgerald, chief executive of EQT Exeter Property Group. in the Wall Street Journal.

“They will continue their trajectory maybe 12 months from now, but… there will be a correction.”

While demand may continue to increase for some time, Schipper said, “The question really is how much? And for how long?

“I don’t think anyone knows the answer.”

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