Tag Archive for: logistics space

Could Higher Gas Prices Have Ripple Effects For Retailers, E-Commerce Leasing In Industrial Market?

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Retailers, third-party logistics firms and e-commerce groups alike are eating up the most big-box warehouse space in today’s red-hot market.

Retailers and wholesalers accounted for the most industrial deals at 200,000 square feet or larger last year, or 35.8% of all leasing activity, a considerable increase from 24.7% in 2020, according to CBRE Group Inc. E-commerce fell from the No. 1 spot in 2020 to third last year, accounting for 10.7% of all deals, while 3PLs grew from 25.8% to 32.2%, ranking No. 2 among large industrial leases in both 2020 and 2021.

Propelled by a surge in online ordering, and changes to consumer preferences in part because of the pandemic, retailers and 3PLs have ramped up their distribution networks considerably in recent years. That demand is expected to be sustained this year, and could become even more frenzied with the recent surge in gas prices.

The cost of regular gas has risen nationally 20.9% in the past month, from an about $3.50 a gallon to $4.32 on Tuesday, according to figures from Heathrow, Florida-based American Automobile Association Inc.

James Breeze, senior director and global head of industrial and logistics research at CBRE, said transportation accounts for at least 50% of a typical industrial occupier’s costs, even before the recent hike in inflation and oil prices. But, largely because of sanctions imposed on Russia from the war in Ukraine, oil prices have risen dramatically, although Brent crude futures — a key benchmark for oil prices — just began to decline. National gas prices were down 0.2% between Monday, March 14 and Tuesday, March 15, according to AAA.

“Any run-up in transportation costs will likely outpace warehouse rent growth, even while that’s growing at a rapid clip, which could result in even more demand for warehouse space,” Breeze said.

Carolyn Salzer, senior research manager of industrial logistics at Cushman & Wakefield PLC said higher gas prices could have a ripple effect on the industrial market, depending on the user and their supply-chain model. Both Salzer and Breeze said real estate costs for warehouse users have typically been about 5% of a company’s costs but, more recently, that’s gotten closer to 10%, Salzer said.

“If you bite the bullet and pay the more expensive rent to be close to the population center, and be more competitive with the labor pool and provide easier options for commuters to get to where you’re located, it can cut your transportation costs on gas and mileage in general,” Salzer continued.

Cushman & Wakefield is forecasting rent growth for warehouse and logistics space will rise by more than 15% in the next two years. Class A and new construction rents are anticipated to grow at an even higher rate. Those rental surges are creating a squeeze for some users, with tenants looking at lease terms sooner than what’s typical, or negotiating an early renewal or a smaller extension to resize a facility or consider real estate farther out, Salzer said.

But, Breeze said, for most industrial users today, higher rental rates generally aren’t causing companies to hit the brakes on expansion because they need the space to store inventory and lower transportation costs.

Salzer said she anticipates e-commerce users will occupy about the same share of the market it has since the pandemic, or 40%. That’s compared to 28.2% of all industrial absorption from 2016 through 2019, according to Cushman. Many retailers are opting to work with 3PLs to bolster their supply chains, which will continue to comprise demand in 2022 and beyond.

“CBRE so far this year has seen ramped-up leasing activity for groups that deal in building and construction materials, as well as medical supplies, which typically represent a lower share of the overall warehouse market, Breeze said. “That’ll likely mean a more diversified occupier base this year.”

 

Source: SFBJ

Permanently Altered Industrial Sector Will Drive Demand For 4B SF: Prologis Report

The coronavirus pandemic has reshaped the global logistics market in fundamental ways, spurring its long-term growth, but also putting new stress on the system as consumers adopt online retail sales more quickly than they might have otherwise, according to a new report by industrial real estate giant Prologis.

That could lead to demand for 4B SF of new logistics stock.

The report, “Forever Altered: The Future of Logistics Real Estate Demand,” said perhaps the main driving force in change for the industrial sector will be the accelerated growth in e-commerce. Though the pandemic will end, that will remain as one of its prime legacies.

E-commerce penetration will continue to be robust post-pandemic for a number of reasons. One is that many consumers overcame barriers to e-commerce during the pandemic, and they aren’t going back, the report says.

Also, innovation and supply chain investments made during the pandemic will hone the competitiveness of online options for retailers. That will be especially the case for retail segments with low e-commerce penetration before the pandemic, such as grocery retailers and home improvement specialists, Prologis predicts.

“Consumer expectations have increased in a permanent way,” the report notes. “Prologis Research forecasts that global e-commerce penetration will rise by 150 basis points a year over the next five years. Physical retail will increasingly require rapid replenishment operations to compete.”

Growth in consumption-oriented uses will drive growth in logistics real estate, even as production-oriented uses decrease, Prologis also found. Consumption is now the main driver of demand for logistics space on the global level, with retail sales having a higher correlation with logistics demand growth than more traditional uses of such space, such as manufacturing or wholesale trade.

These changes will naturally mean opportunity for industrial real estate owners and developers, but there will also be growth pains in logistics going forward.

“The resilience of the supply chain is being tested as companies expand globally, in turn driving the need for modern stock and decentralized networks,” the report notes. “Coupled with a rising consumer class, this worldwide upgrade should generate the need for 3 to 4B SF or more of modern logistics stock over the next cycle.”

 

Source: Bisnow