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As shopping centre and high street landlords survey the wreckage left by coronavirus, warehouse owners are facing a different problem: how to deal with record demand.

The pandemic has pushed more consumers online, prompting a rush for warehouse space, from small “last-mile” delivery sites near city centres to cavernous “big-box” distribution centres

Amazon has led the charge. The company, which has added an eye-watering $600bn to its market capitalisation this year as sales have jumped, is inking lease agreements on mammoth warehouses around the world. It has committed to opening 33 “fulfilment centres” in the US this year, an additional 35m square feet spread from Atlanta to Arizona.

The US ecommerce giant is also the incoming tenant of a 2.3m square foot warehouse on London’s outskirts, according to people with knowledge of that deal. Amazon’s sprawling expansion is one reason why investors are sensing opportunity.

The take-up of UK logistics space hit record levels in the second quarter of the year, according to property group CBRE — despite the lockdown.

“Following a quiet few months after coronavirus hit, investors are back with a vengeance”, said David Sleath, chief executive of Segro, the dominant logistics company in the UK and a sizeable participant in Europe which last week said it had lifted first-half profit. “If you are a global institutional investor and you want exposure to commercial real estate, this is an attractive place to be.”

A decade ago, ecommerce accounted for 6.7 per cent of all retail sales in the UK, according to the Office for National Statistics. By February, the month before the outbreak, the figure was 19 per cent. By May it had hit 33 per cent. In April, 27 per cent of purchases were made online in the US, according to the commerce department and Bank of America.

Until recently, the most desirable property to own was a traditional mall. Malls had a natural moat, being difficult to develop and serving a catchment area

“That share was likely to diminish as stores reopened,” cautioned Mr Sleath, “but incoming tenants were looking to crystallise that temporary spike into increased capacity”.

“There’s a wall of cash coming into our sector,” said Marcus de Minckwitz, an investment adviser on European logistics at Savills property.

Every extra £1bn spent online means the addition of almost 900,000 square feet of logistics space, according to CBRE. New York-listed Prologis, the world’s largest warehouse company, estimates that 1.2m sq ft of space is needed for every $1bn in ecommerce sales in the US.

Gains from ecommerce tenants far outweigh the losses from bricks-and-mortar retailers, according to CBRE, one reason why Blackstone, the world’s largest private property owner, has described logistics as its “highest conviction” sector.

“Until recently, the most desirable property to own was a traditional mall. Malls had a natural moat, being difficult to develop and serving a catchment area . . . Logistics for a long time was viewed as the other end of the spectrum: not so exciting and more easily replicable,” said Ken Caplan, global co-head of Blackstone Real Estate. The rise of ecommerce had shifted that whole dynamic.”

In June 2010, Segro’s market capitalisation was less than £2bn, according to data from S&P Global. Now at £11.8bn, it is comfortably the UK’s largest listed property group; UK shopping centre owner Intu, meanwhile, has collapsed. The value of US peer Prologis has climbed a fifth this year to roughly $77.5bn.

Dozens of shopping centres in the US are being turned into industrial sites, according to CBRE, which says Covid-19 will accelerate the trend. This week, the Wall Street Journal reported that Amazon was in talks with mall owner Simon Property to repurpose department stores as distribution hubs.

Thanks to the ecommerce boom, CBRE predicts there will be demand for 333m sq ft of new space in the US by 2022 — treble its previous estimate — and expects rents to grow by about 6 per cent a year. Amazon is not the only eager tenant. Fashion retailers with a limited online presence have desperately sought space to park stock they could not shift in the pandemic.

“They already have warehouses full of clothes, then next season’s come in and they can’t stack it,” according to one UK property agent.

“But while some warehouse owners had suffered hits to rental income from retail tenants in particular, investors bidding for new sites were achieving few discounts,” said Mr de Minckwitz.

“Some indiscriminate investors were likely to get caught out, warned Mr Sleath. “There will be more retail fatalities, that will mean empty warehousing as well as shopping centres. It’s very important to think about where you place your money.”

Asset manager PGIM bought five German logistics sites last month and said it was optimistic that demand would only grow. Private equity firms are piling in too: as well as Blackstone, Meyer Bergman plans to raise €750m to invest in Europe.

“Investors needing long and strong sources of income, such as sovereign wealth funds and European pension funds, were also attracted by the sector,” said James Dunlop, a fund manager at Tritax Big Box.

“But some might come unstuck,” cautioned Adrian Benedict, head of real estate solutions at Fidelity. “There’s a flood of capital from retail to logistics. Inevitably, with every crisis, you see those poorly considered deals at the end of the cycle are the ones you really regret.”

 

 

Source: SFBJ

Developers completed construction of 289 million square feet of industrial and logistics real estate in the U.S. last year, but any concerns of oversupply are tempered, as only 39 percent of space in new construction was available.

That’s a major factor in vacancies staying near all-time lows in 2019, according to a new report from CBRE. The CBRE analysis finds that at 22.2 percent, Central and Northern New Jersey ranked among the top five markets nationally with the lowest vacancy rate for 2019 completions.

Deliveries outpaced the 255 million square feet of new absorption, but with robust leasing from occupiers, especially ecommerce and retail firms that often require modern building design and amenities, supply and demand dynamics remain healthy. A vacancy rate of less than 50 percent is considered healthy for newly delivered industrial properties.

“As New Jersey’s industrial market continues to break leasing and rental rate records, new developments are being snapped up by space users at a rapid pace,” said Thomas Monahan, Vice Chairman. CBRE. “While the development pipeline remained robust with 28 buildings and 10.3 million suqare feet currently under construction, the demand for high quality product is far outpacing supply.”

Another major factor contributing to the strong absorption of new construction is the increase in built-to-suit development — the construction of space for a specific space user. This segment made up 28.1 percent of new construction activity, as companies increasingly need unique requirements to meet their specific demands.

In markets with over four million square feet of new development, Kansas City finished 2019 with the lowest overall vacancy rate for 2019 construction completions at 7.3 percent, followed by Miami, Baltimore, and Greenville, SC, which all had vacancy rates for newly constructed product under 20 percent. Dallas-Fort Worth was the strongest core market, with nearly 75 percent of the 25 million square feet completed in 2019 taken.

Supply fundamentals should remain stable this year, as already 33 percent of the 309 million square feet under construction nationwide is already accounted for. A preleasing rate of 25 percent for under-construction product typically are indicative of a solid leasing environment.

 

Source: Real Estate Weekly

technology

South Florida cities rank among the top tech markets in North America, according to a recent CBRE study.

The commercial real estate services and investment firm used 13 metrics to create a score based on the competitive advantage of each market and their ability to attract and grow tech talent pools.

Miami and Fort Lauderdale are gaining tech jobs and are seeing increases in their millennial workforce, the report revealed.

While these markets pose vitality in the future, they are expensive to operate in for tech workers and employers. Among the top 10 most expensive office markets on the list, Miami was the only small tech market with an asking rate above $35 per square foot.

Click here for a SFBJ slideshow to find out where Miami and Fort Lauderdale rank nationally for tech talent.

Click here  for CBRE‘s full report.

 

Source: SFBJ

The industrial market is still hot across Miami-Dade and Broward counties.

Competition for industrial space is fierce in Miami-Dade and it’s driving demand from buyers and tenants who are eyeing smaller warehouse properties. That, in turn, is leading to higher lease rates, according to a recently released report by CBRE.

And in Broward County, a dip in vacancy rates is helping lure more outside investors and tenants amid a sizable amount of new industrial deliveries.

MIAMI-DADE

Vacancy rates in Miami-Dade held steady at 3.6 percent in the second quarter, up slightly from 3.5 percent the same period of the previous year.

Most of the leasing activity occurred in Airport/Doral (557,124 square feet), followed by Central Dade (218,984 square feet), and Miami Lakes (94,900 square feet), according to the report.

Rents are also rising. Miami-Dade’s industrial market had an average asking rate of $9.23 per square foot in the second quarter, up 3.9 percent compared to the same period of 2017, according to CBRE. More than 90 leases were signed totaling 1.9 million square feet, with an average lease size of 20,000 square feet, the report shows.

Overall sales for Miami-Dade’s industrial market during the second quarter amounted to $362 million with 34 transactions for a total of 2.5 million square feet, up from $78 million for 15 sales totaling 553,000 square feet in the first quarter. The average sale price per square foot in the second quarter was $145, and the average deal size was 73,500 square feet.

Hialeah continues to be a top industrial submarket in Miami-Dade. The North Hialeah submarket accounted to 50 percent of the industrial transactions in the second quarter of 2018. Among recent deals was Duke Realty’s $180 million purchase of Flagler Global Logistics’ 8 million-square-foot industrial park.

Nine buildings were delivered in the second quarter, totaling 1.1 million square feet of new industrial space. Foundry Commercial’s Carrie Meek International Business Park is among one of the largest industrial projects under construction in the region, totaling 855,000 square feet and set to be completed by the fourth quarter of 2018.

Despite numerous larger transactions, spaces in the 10,000-square-foot to 25,000-square-foot range are the most desired, and is expected to push rental rates for those buildings up near those sought for newer construction, according to the report.

BROWARD

Broward’s industrial market is showing no signs of slowing down. Vacancy rates dipped in the second quarter to 3.9 percent from 5.3 percent, on a year-over-year basis, the report shows.

Leasing activity was mixed within the region. Northeast Broward had the highest level of net absorption during the second quarter, at 168,672 square feet, but southeast Broward saw a negative absorption rate of 334,533 square feet. The report said the level of negative net absorption is due to the addition of at least three new buildings in the Pompano Center of Commerce as well as the 131,000-square-foot East Davie Commerce Center.

Broward’s industrial market had an average asking rate of $8.29 per square foot in the second quarter, up 3 percent compared to the same period of 2017, according to CBRE.

Overall sales for Broward’s industrial market reached nearly $200 million in the second quarter. Notable sales include Fortress Investment Group’s $66.4 million acquisition of a SuperValu distribution center in Pompano Beach, as part of a larger $483 million national portfolio deal. Another is Exeter Property Group’s portfolio sale of nine warehouses amounting to about $43 million.

Supply is also increasing in the county. One of the first buildings of the South Florida Distribution Center in Pembroke Pines is on the verge of being completed, offering 225,000 square feet, according to the report. Seneca Commerce Center I, spanning 222,000 square feet at Pembroke Park, and Coral Springs Commerce Center III, with 215,500 square feet, are on pace to be completed by the third quarter of 2018 and the beginning of next year, respectively.

Low vacancy rates and rising rents are expected to keep driving demand in Broward, the report says.

 

Source: The Real Deal