Thursday, March 25, 2021

Real Estate: "Logistics warehouse tenants should brace for 10% rate hikes — CBRE"

If your mandate said you had to have exposure to real estate, this and cousin cold storage were the place to be over the last seven or eight quarters.

From FreightWaves, March 24:

This year looks even better than last, at least for landlords

Big-box logistics warehouse tenants may be facing their most challenging year ever as a mix of strong e-commerce demand, tight supply and rising construction costs could drive up rents by as much as 10%, according to an executive for real estate services giant CBRE Group Inc. (NYSE:CBRE)

John Morris, CBRE’s industrial and logistics and retail leader, said in a webinar on Monday that the chances of double-digit rate hikes would largely depend on the pace of construction activity. The North American big-box industrial market currently has 190 million square feet under construction. However, 43.7% of that space has been pre-leased and is effectively off the market, according to the company.

Because of the limited amount of space that is left to bid on amid elevated demand, the North American market remains in a “state of undersupply,” said James Breeze, CBRE’s global head of industrial and logistics research.

Adding to the pressure on occupiers is the higher cost of building materials as the industrial sector struggles to erect buildings as fast as it can while competing with the surging residential housing market for access to raw materials, in-process and finished goods. Those costs are typically passed on to the end user.

The 2021 outlook, if accurate, will amplify the sticker shock for industrial tenants that have watched rents rise relentlessly over the past eight to nine years as demand for e-commerce fulfillment space outstrips the supply of buildings to handle the growth. So-called taking rents, which represent rents during the first year of new or renewed contracts, rose 7% last year, according to CBRE data. Tenants that signed multiyear leases around the middle of the last decade are facing significant increases as their contracts come up for renewal.

The additional square footage that hit the market in 2020 didn’t make a dent in overall vacancy rates, which CBRE said declined by 60 basis points year-over-year. Many big industrial markets continue to report low-single-digit vacancy rates. In Toronto, where strong fulfillment demand has collided with virtually no new construction, the vacancy rate in 2020 fell to a ridiculously low 0.3%.....


The story so far:

December 22, 2020
"Why Blackstone and other private equity giants are gobbling up warehouses"

December 13
Real Estate: "Logistics market is hot, but is a bubble forming?"
It's always nice to see a sector you've been babbling about for a couple years finally referred to as a bubble.

Our interest was oftentimes even more niche, the cold storage sector of warehousing:

December 10
Where water turns to snow: S.Korean ultra-cold warehouse prepares to store Pfizer's vaccine
November 10
Robot Company With Attached Grocery, Ocado, Unveils Two Robot Acquisitions

Warehousing Logistics: "Lille-based Exotec raises €77.1 million to support the international expansion of its warehouse robotics solutions"
French Robot Logistics Startup Scallog Secures New Funds
"In 2012 Jeff Bezos scooped up warehouse automation firm Kiva. Everyone else is still trying to catch up" (AMZN)

October 8
Logistics: Maersk Is Pretty Cool
June 2020

Logistics: Top 20 U.S. Warehouse Owners
June 2020
"Warehouse space crunch will tighten as 'lean' supply chains fatten up"
April 27, 2020
The UK Food Situation Is Going to Get Interesting
From Reuters:
World's biggest cold storage supplier could reach full UK capacity in three weeks.....

April 22
Shipping: "Global container shipments set to fall 30% in next few months" (warehouses are full)
April 16
Understanding the Oddities of the Food Supply Chain Caused By the Response To Covid-19
April 4
Supergrocer: "Inside the Story of How H-E-B Planned for the Pandemic"

June 3, 2019
Logistics: Big Money For Warehouses, Looking at Cold Storage.

...This next bit brings back some memories. My second stock to double was a cold storage company, actually a dairy with a cold storage operation that was valued at about one-quarter of comparables. I started chipping away at the float and before I got anywhere near enough stock, the management, who knew full well the value of the operation, did an LBO and took it private at 2x market and ended up generating cash-on-cash returns (for themselves) of around 40% per annum for a decade or so.

June 6, 2019
"It's About To Become A Hot Market For Cold Storage Facilities"—CBRE
March 30, 2020
"Coronavirus: Panic buying sparks surge in flexible storage demand"

Cold is very important.