Investing in logistics facilities and industrial developments, such as warehouses and distribution centers, continues to present attractive opportunities in this post-COVID-19 supply chain environment.
A new model for how goods are distributed
Historically, the logistics market developed over several decades to accommodate a more traditional “hub-and-spoke” model. However, with the surge of e-commerce activity and changes in how we all shop and expect to receive goods purchased, a more decentralized model of fulfillment is the future, which will require more warehouses in different places. That is evidenced by the fastest-growing markets of 2022, which include Savannah, Louisville, Indianapolis, and San Antonio.
Among shipping ports, Savannah, Houston, Norfolk, and Charleston account for 32% of
imports amongst the 10 largest ports. Those same ports account for 49% of the growth since 2019.
Growing demand to lease warehouse space
Among companies leasing logistics facilities, the three largest user groups are third-party logistics companies, general retailers, and wholesalers. E-commerce has accounted for 5-10 percent of logistic facility / warehouse occupancy in recent years. In total, there was 665,015,030 square feet of leasing activity in 2022 (and that only includes leases of more than 100,000 square feet). That demand is anticipated to grow considerably, with 64% of users expected to grow their leasing footprint in the next three years. Of that, 50% expect to grow by more than 10%.
The game changer that is e-commerce
Despite the increases in penetration brought on by the COVID-19 pandemic, e-commerce is still believed to be in its “infancy” and is expected to continue to grow at a faster pace than traditional brick and mortar over the next decade. Furthermore, increased demand is expected in industrial real estate due to the continuing trend of the decentralization of supply chains, diversification of port entries, and increased domestic manufacturing.
New supply growth is expected to decrease as a percentage of inventory in 2024 due to capital markets discomfort, and not underlying real estate financials. Tenant demand is still strong and is expected to grow. Due to this dynamic of decreased new supply and continued strong demand, rent growth is forecasted to continue above 7% over the next three years. The growth in rents is expected to have doubled between 2019 and 2026, indicating an opportunity for investors.
Learn more about investing in logistics with Cresset’s Logistics Funds.