Logistics warehousing – the new king of industrial real estate. But the warehouses themselves are there getting older – according to real estate giant JLL Inc., middle age warehouse in the US in 2022 is 42 years.
It’s not quite cutting it these days. У The study is in May 2021, real estate firm Cushman & Wakefield found that more than half of the 70% of warehouses built before 2000 had a clean ceiling height of 27 feet or below. But Cushman executives also estimated that tenants of large boxes with facilities of 500,000 square feet or more needed 32 to 40 feet.
But the construction of the warehouse did not get cheaper. In fact, it’s getting more expensive – another Cushman report showed that today the cost of materials such as steel, concrete and lighting is more than what it would have cost to build an entire warehouse just a few years ago.
The high cost of building a new facility or replacing an old one has also led to an unprecedented increase in rents. In the first quarter of 2022, the average rent across the country was $ 7.24 per square foot. Prior to that, they had never exceeded $ 7.
This, however, did nothing to stifle demand. Despite recent historical lows in the real estate supply logistics, increased consumer demand and an aging cohort of warehouses are causing the need for more space, and tenants are paying more for them, whether they like it or not.
Due to the fact that warehouses are harder to find than ever before, the error rate for logistics real estate investments is getting smaller. So, what should give priority to property managers and warehouse tenants in the new facility?
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Previously, the acquisition of industrial property was a quarterly or monthly concern. But, according to L.D. Salmanson, Cherre’s CEO for real estate and analytics, caused a pandemic shift towards online spending making it a problem the companies think about on a daily basis.
“It creates a really horrible environment for all these retailers: ‘Half of my consumption has just gone online.’ None of this will come back, and I’m not even remotely designed to handle it, ”Salmanson explained. “So now we have this explosion, the need for these centers is almost everywhere in the US”
Cherre typically works with large asset managers such as Brookfield or CBRE. The firm combines publicly available, third-party, and internal data to create a dynamic profile of each of its facilities, updating items such as bandwidth, cost of operation, and types of products processed in real time.
To do this, Cherre captures a wide range of data. Salmanson’s shortlist included, but was not limited to: taxes, documents, mortgages, appraiser reports, past transactions, zoning permits, and even details such as surrounding pedestrian traffic and weather conditions.
However, he stressed that when retailers are looking for a new facility, they are really looking at all their facilities.
“When we connect these datasets, we don’t just deliver them to market in that form,” Salmanson said. “We deliver them in connection with everything else the customer owns.”
In the case of industrial facilities such as warehouses or 3PL facilities, Salmanson explained that retailers usually weigh the building’s operating costs against the cost that the building brings to their shared network. For example, the operation of one facility may cost more per square foot than another, but its location optimizes vehicle routes, helping tenants save on transportation costs.
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“I think it is very difficult for new players because the competition is high. You have to move very fast in the market. The market changes weekly, and in order to be competitive in the market, you need to have a great understanding, ”said Doris Pitilon, technical director of real estate manager at the last mile of Faropoint, one of Cherre’s clients.
“What characterizes the last mile is market friction,” she continued. “And that’s because of fragmented ownership, local investment, selectivity, small size of deals and lack of data.”
Faropoint takes into account data such as rent, location and condition of the property before making a purchase. But, according to Pythylon, choosing the right logistics facility is an understanding of its local supply and demand.
Analyzing supplies is easy, Pythion said. Faropoint uses a combination of artificial intelligence technology and human asset managers to estimate the facility’s current throughput.
The hard part is on the demand side. Because tenants need to be able to predict demand to know what value the facility will actually provide, Faropoint needs to consider factors such as local population, number of e-commerce orders delivered to the surrounding area, more broadly. macroeconomic demand trends and many other data.
“Basically, we combine everything and evaluate: what is the weight of each parameter, each predictor for the purchase price?” Pythylon explained.
“To be able to tell the customer, ‘Hey, the price of warehousing and delivery here will vary depending on demand.’ … Since I can’t add more space, it has to be driven by real-time understanding, ”Salmanson added.
Whether these ideas come from within the country or from a data and analytics company like Cherre, retailers need to have an idea of what the price looks like right now and what demand will look like in three months, or six months. or a year later.
They also need to remember that cost is not always equal to cost. This means looking not only at what an individual object can do on its own. To really calculate the cost, retailers need to consider that the warehouse brings them to a wider network of logistics facilities.
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