3PLs See a Resurgence in Relevance
Matt Hilburn – Associate
Amazon, the multinational company known for disrupting the world of e-commerce, cloud computing, and even grocery stores is now gearing up to revisit an old challenge, the logistics sector. Earlier this year, Amazon CFO Brian Olsavsky announced that Amazon would begin shifting their standard 2-day delivery to 1-day delivery. The trickle-down effect of this change is already affecting the 3rd party logistics and industrial real estate sectors of the economy in some obvious ways.
Third Party logistics companies, or 3PLs, are beginning to see a resurgence in relevance. While Amazon has many fulfillment-centers dotted across the country that deliver its stock to final customers, much of this work is completed by “last-mile” logistics companies. These companies typically offer warehousing and relatively short distance delivery services. With Amazon’s shift to single-day delivery, 3PLs are under pressure to acquire more space, work more hours and increase efficiency as well as productivity.
The industrial spaces that these companies need, however, is scant. Until recently, warehouse and logistic space was an afterthought. To many, this product was a necessity, but unattractive. Rising business inventories and industrial production is changing this perception. In order to stay competitive and meet the new expectations set by Amazon, businesses are rethinking their position on industrial real estate. This sea change is pumping up the desirability of older stock and causing a surge in new construction.
This is not going unnoticed by real estate researchers, as CBRE Head of Americas Research and Global Chief Economist Richard Barkham said, “At the moment, though, the market remains quite tight. We do expect the factors driving demand to ease slightly in the coming quarters, as economic growth slows. This won’t be anything dramatic, as the overall economy is in good shape. But market conditions will ease slightly, particularly for larger units.”
These factors are leading industrial real estate, especially warehouse space, to be some of the most sought-after products on the market. The Blackstone Group, a multinational private equity firm, has been blazing new ground in this area, buying up portfolios as well as single warehouses for most of 2019, and they show no signs of stopping. Recently, the group set the record for the largest private real estate deal in history when it bought Singapore-based GLP’s US warehouse portfolio for $188.7bn. Soon after, they bought another portfolio of warehouse from Colony Capital, valued at $5.9bn. Nadeem Meghji, Blackstone’s head of real estate said, “This acquisition of high-quality warehouses demonstrates our continued strong conviction in logistics and positive ecommerce trends.” The private equity firm has gathered a portfolio of $10bn in last mile assets recently, and their closest competitor, ProLogis, is not far behind, in October the warehouse company acquired Property Trust for $12.6bn and IPT for $4bn in July. ProLogis was also a competitor of Blackstone in its acquisition of GLP’s portfolio.
The Dallas-Fort Worth Metroplex is not being left out of this trend either, currently North Texas has more current warehouse construction than all other commercial construction combined for a total of 35 million square feet, according to a new report released by Cushman and Wakefield. Even with all this construction, vacancy has fallen to less than 7%. Kurt Griffen, Cushman and Wakefield’s executive managing director, expects the area to absorb upwards of 25 million square feet by years end. The growing population and favorable business environments have put DFW ahead of all other cities in terms of industrial real estate desirability.
With all this data in mind, now may be one of the best times in recent history to make the jump into industrial real estate, whether it be renegotiating an existing lease, relocating to a building with greater clear heights, or simply investing in the industrial real estate boom.
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