Markets: nervousness in Europe before the ECB, softness in Asia

The warehouse market is on fire, boosted by the pandemic and e-commerce

The warehouse market is on fire, boosted by the pandemic and e-commerce

The rise of e-commerce and the logistical nightmare of the coronavirus pandemic have sent demand for warehouses soaring in the United States, a trend that hasn’t escaped the notice of big-bet investment funds. in this market.

“It’s a maddening battle to find a suitable location for clients,” says Michael Schipper, of New Jersey and New York commercial real estate broker Blau & Berg, “to unearth a property for sale. »

The free space rate has been falling steadily for a year and a half, and is now at 3.4%, although more than eight million square meters of new warehouses were delivered in the first quarter of 2022, according to real estate company Jones. Lang LaSalle.

Demand is such that in just six years, purchase prices have multiplied by 3 or 4 in the region covered by Michael Schipper, in northern New Jersey. For rental, the average price has increased by 22% in the United States in two years, according to the firm Beroe.

“Logistics and distribution for e-commerce are the catalysts for this need for space in the American market,” says Beroe, who notes that demand has exceeded supply for 18 months.

– “Last mile” –

In addition, unlike traditional storage sites, the preparation of orders placed on the Internet requires technologically advanced warehouses, underlines Mark Manduca, chief investment officer at GXO, which offers logistics solutions to companies.

This equipment, which requires massive investments, allows “to improve the efficiency of a site and to accelerate the activities of the warehouse to meet the demand for same-day delivery”, explains Beroe.

Invented by Amazon, the new standard of immediate delivery imposed itself on the major competitors of the Seattle giant, who had to align themselves.

Behind the Seattle giant, “many companies have accelerated the development of their online offering,” says Mark Manduca. “They are the ones who are driving the demand for warehouses for the last kilometer”, the “last mile”, that is to say which make it possible to directly serve the final destination.

The tyranny of instant delivery has forced many brands to multiply storage locations to get closer to customers, especially in urban areas where real estate was already expensive.

The pandemic spurred a movement that was already at work, causing e-commerce revenue to jump 56% between early 2020 and early 2022.

– Soon a correction?-

Another Covid effect, the great logistical mess caused by the confinements and health restrictions. “We had containers in the wrong places, supply problems and, more recently, excessive stocks,” recalls Mark Manduca.

To limit these risks, he says, many companies are “looking for production locations closer” to their markets, “which increases the demand for warehouses”.

“We are seeing a jump in companies increasing their inventories to alleviate supply problems” and are therefore looking for additional space to store them, said Jon Gray, the number two of the investment company Blackstone, in April.

Blackstone has invested heavily in the sector, and currently owns $170 billion worth of warehouses. It now rivals Prologis, the world number one.

Other private equity giants, such as KKR, Carlyle, Apollo or Sweden’s EQT have all bought sites to ride the wave of ‘warehousing’ (warehouse storage).

“The outlook for the warehouse market is positive in the long term, but we will have to take a break,” warns Michael Schipper, according to whom the tightening of credit conditions, currently underway, could play a role. “You cannot continue on this trajectory indefinitely. »

Among the signs of a possible correction, Amazon’s decision to sublet or renegotiate the rent for more than 2.7 million square meters of warehouses.

“You will see demand drop and rents stop rising at this rate,” warned Ward Fitzgerald, managing director of EQT Exeter, a subsidiary of EQT, in the Wall Street Journal.

“The question,” according to Michael Schipper, “is how much, and for how long. Nobody has the answer. »

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