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Home>E-Commerce Mania Spreads To Warehouse Market

E-Commerce Mania Spreads To Warehouse Market

E-Commerce Mania Spreads To Warehouse Market

09/26/2017

 By Esther Fung 

E-commerce is setting off a scramble for industrial real estate near urban centers, giving landlords of once-unglamorous properties a chance to push up rents to record levels.

Amazon.com Inc. and other online retailers, as well as fulfillment companies such as FedEx Corp., increasingly are seeking out "last-mile" locations in urban areas to feed consumer demand for ever-faster delivery of their purchases.

That, in turn, is giving landlords of such facilities pricing power they have never enjoyed before.

On average, U.S. industrial rents stood at a record $5.35 per square foot in the second quarter, up from $5.25 in the first quarter, according to data from real estate services firm JLL.

A well-located last-mile facility "has the functional equivalent of a high-end retail store," said Hamid Moghadam, chairman and chief executive officer of industrial real-estate investment trust Prologis Inc. Such facilities are productive for the tenant and reduce transportation and labor costs.

But they also are scarce, prompting some landlords to get creative. Prologis, a San Francisco-based REIT, purchased the old ABC Carpet building in the Bronx earlier this year to convert to warehouse space. It expects to get rents in the low-$20 per square foot, which would be comparable to some office and retail asking rents in the area.

When a company is shipping to individual customers rather than in bulk to stores, most of their costs are in transportation and labor, and reducing them is a priority, said Eric Frankel, an analyst at real-estate research firm Green Street Advisors. Warehouse rent, by contrast, represents just 5% or so of costs in a supply chain.

"If you think about sales productivity across the entire supply chain, paying a high rent is not a big deal," said Mr. Frankel.

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