The "Amazon Warehouse" Effect Update

A slow and steady growth in global trade - and coastal port markets - had already begun increasing demand for warehouses, before the rapid rise of Amazon and e-commerce put this process into overdrive. In the Boston-area, a mixture of the “Amazon Effect” and the white-hot pharmaceutical economy is fueling a notable bull market. Amazon opened a million-square-foot Fall River distribution center in 2016 and other examples are plentiful.

On March 20th, BREIT, Inc (a subsidiary of Blackstone) bought a portfolio of industrial properties,

In October 2017, The Seyon Group bought a group of industrial buildings in Watertown and Chelsea.

Also in October 2017, National Development acquired a 7-acre industrial property in Chelsea (with plans to redevelop).

As a number of firms continue to invest in industrial space for breweries and warehouses or distribution centers the cost per square foot continues to rise, approaching the cost per square foot of office space. It is a paradigm shift to consider the value of warehouse space to be on par with the value of office space. To what extent the asset classes continue this trend remains to be seen.

Nationwide, industrial properties of five to 10 acres, which typically house large distribution centers critical to e-commerce operations, watched their prices rise past a quarter million per acre by the end of 2017 (up from roughly $200,000 a year ago). The economics is simple: products sold online use roughly triple the storage space as products waiting to be sold in stores and e-commerce companies must have lighting-quick shipping for consumer goods, requiring large and modern warehouses close to dense population centers. Although real estate developers are currently building roughly double the 10-year average of warehouse space built per year, supply is not meeting demand, in part due to high land prices found in America’s coastal metropolises.

Industry experts see strong fundamentals for the warehouse market.” Hamid Moghadam, the chief executive of San Francisco-based Prologis, the world’s largest owner of industrial real estate in the world, is bullish on geographically proximate warehouses, “Do you know any kids who still buy things at the store?” he said.

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