Demand for warehouse space continues to rise as retailers and brands scramble to meet simmering demand for e-commerce orders and quick home delivery, which has stayed hot despite federal efforts to cool rising inflation with rate hikes.
In a measure of the trend, industrial real estate firm Tishman Speyer this week formed a $500 million joint venture with Mitsui Fudosan America (MFA), the US arm of $65 billion Japanese real estate firm Mitsui Fudosan Co. Ltd MFA and an unspecified investment by Tishman Speyer, the partners plan to acquire, develop, rehabilitate and operate industrial properties in certain US cities.
The partnership will primarily focus on large urban centers with dynamic workforces, growing populations and high barriers to entry, the companies said. They cited examples such as Los Angeles, the New York metro area, the Puget Sound area, the San Francisco Bay Area, Austin, San Diego, Washington DC, Boston and Chicago.
“The changing needs of today’s consumers have created strong demand for well-located, functional industrial real estate. This is especially true in the cities with the most supply bottlenecks. Through this new joint venture, we intend to create and operate facilities that bring businesses closer to their customers,” said Rob Speyer, CEO of Tishman Speyer, in a press release.
The new partnership follows a general move by developers to build logistics and fulfillment spaces closer to densely populated cities rather than less expensive rural areas. This choice can pay dividends by shortening the distance between distribution centers and consumers, enabling next-day or even same-day delivery of online orders.
As this migration has been unfolding for years, some observers thought that post-pandemic economic conditions, such as a tight labor pool and an uncertain stock market, could scare investors. However, analysts say demand in the industrial market may slow slightly from its record pace seen in 2021, but is expected to hold up overall.
An Industrial Occupier Survey by real estate firm CBRE found that 64% of US businesses plan to expand their real estate presence over the next three years, despite economic uncertainty. This strain is being led by e-commerce, as evidenced by red-hot expansion demand reported by 81% of third-party logistics providers (3PLs), as well as 75% of food and beverage companies and 75% of building materials and construction firms.
“The US industrial market continues to see robust demand, and companies are adding warehouse and distribution space to protect their inventories, diversify their supply chains and process growing e-commerce sales,” said John Morris, CBRE President of Industrial & Logistics in the America said in a press release. “Even in a tougher economic environment, we still see companies looking to expand their footprint in the short-term.”
Further evidence came from real estate firm JLL, which said that despite a slowdown in momentum in the macroeconomic environment, industrial market fundamentals remained solid at the end of the third quarter of 2022. In another move, the vacancy rate for industrial real estate in the third quarter fell for the seventh straight quarter, falling to an all-time low of 3.3%, the company said in its Q3 Industrial Outlook.
According to Houston-based real estate firm Transwestern, the main reason vacancies have fallen to low levels is because occupancy growth has outstripped new inventory shipments in 10 of the last 12 years. The engine behind this growth was e-commerce, which rose from a 4.2% share of total US retail sales in 2010 to 16.4% during the peak of the pandemic, before rebounding to 14 in mid-2022. 5% leveled off.
“With more e-commerce came greater sophistication to maximize supply chain efficiencies. Retailers have transitioned from a just-in-time model to a just-in-case model, expanding their presence in industrial real estate and stocking up on inventories,” Transwestern said in its October report, titled “Predicting the Future of Colossal Inventory Demand.” “. ”
Our new joint venture with Mitsui Fudosan America will allow us to focus on the development, rehabilitation and operations of large consumption centers with dynamic workforces, growing populations and high barriers to entry in major US cities. https://t.co/qv32gGtuS5
— Tishman Speyer (@tishmanspeyer) November 9, 2022
US industrial real estate demand is near historic highs. But how long can that take? CBRE surveyed top industry users nationwide to find out: https://t.co/PGMOwwv6dU pic.twitter.com/DdGeggZnas
— CBRE (@CBRE) November 11, 2022