The free space rate has been steadily declining for a year and a half and now stands at 3.4%. The demand is such that in just six years, the purchase price in New Jersey has increased 3 or 4 times.
The rise of e-commerce and the logistical nightmare of the coronavirus epidemic have boosted demand for warehouses in the United States, a trend that has not escaped notice of Big-Bet investment funds in this market. “Finding a suitable location for clients is an insane battle,” said Michael Shipper of Blue & Berg, a broker who specializes in commercial real estate in New Jersey and New York.
According to real estate company Jones, free space rates have been steadily declining for a year and a half and now stand at 3.4%, although more than 8 million square meters of new warehouses were delivered in the first quarter of 2022. Lang LaSalle. Demand is such that in just six years, the purchase price has multiplied by 3 or 4 in the area covered by Michael Shipper of North New Jersey. For rent, the average price in the U.S. has risen 22% in two years, according to the firm Beroe. “Supply and distribution for e-commerce is the catalyst for this need for space in the American market,” said Bero, who noted that demand has outpaced supply for 18 months.
Demand for last mile warehouse
In addition, technologically advanced warehouses are required to prepare orders placed on the Internet, unlike traditional storage sites, noted Mark Manduka, chief investment officer at GXO, which provides logistics solutions to companies. This tool, which requires massive investment, “improves the efficiency of a site and accelerates warehouse operations to meet the demand for same-day delivery,” Bero explains.
Invented by Amazon, the new standard of instant delivery has put pressure on the Seattle Giant’s main competitors, who had to align themselves. Behind the Seattle Giant, “many companies have accelerated the development of their online offer”, underlines Mark Manduka. “They are the ones who drive the demand for warehouses for the last kilometer”, “the last mile”, which makes it possible to reach the final destination directly. The urgency 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 epidemic sparked a movement that is already working, leading to a 56% increase in e-commerce turnover between early 2020 and early 2022. Another great logistical disturbance caused by the Covid effect, captivity and health restrictions.
“We had containers in the wrong place, had supply problems and recently had excess stock,” recalls Mark Manduka. To limit these risks, he said, many companies are “looking for production locations” near their markets, which “increases the demand for warehouses”.
Relieve supply problems
“We’re seeing companies take a leap to increase their inventory to ease supply problems, and so we’re looking for extra space to store them,” said John Gray, the number two investor in Blackstone, in April. Blackstone has invested heavily in the sector and currently owns 170 170 billion worth of warehouses. It now competes with the world’s number one prologue.
Other private equity giants, such as KKR, Carlyle, Apollo, or Sweden’s equity, have bought sites to ride the wave of “warehousing”. “The outlook for the warehouse market is positive in the long run, but we need to take a break,” warned Michael Shipper, adding that the tightening of credit conditions, which is currently underway, could play a role. “You cannot continue this path indefinitely.”
Among the signs of a possible revision is Amazon’s decision to sublet or renegotiate rents for warehouses over 2.7 million square meters. “You’re going to see a decline in demand and rents will stop rising at this rate,” he warned The Wall Street Journal, Ward Fitzgerald, Managing Director of EQT Exeter, a subsidiary of EQT. The “question”, according to Michael Shipper, is “how much and for how long. No one has the answer.”