Warehouse demand compensates for vacant office space

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ShipBob fulfillment center in Moreno Valley, California

Ship Bob

After Ship Bob Last July, the company decided to allow employees to work from anywhere, and the owner of a logistics startup ordered a landlord to erect a wall in the center of the Chicago headquarters so that half of the space could be rented out to another company.

On March 1, the office reopened due to a reduction in the number of places for social distancing meetings.

But despite using less office space, ShipBob’s real estate needs are expanding at a breakneck pace. The company, which provides fulfillment services for online stores, more than doubled number of warehouses from mid-2020 to 24 locations today, including four outside the United States, with plans to increase to 35 by the end of 2021.

The seven-year-old company is a microcosm of the US commercial real estate market. Until the number of vacancies in offices has increased dramatically As employers prepare for the future of distributed work after Covid, the industrial market is getting hotter than ever with the pandemic-fueled surge in e-commerce and increased consumer demand for more products. Amazon-similar speeds.

Vacancy rates in industrial buildings are close to an all-time low, and new warehouses cannot be built quickly enough to meet the needs of clothing manufacturers, furniture retailers and home appliance manufacturers. CBRE stated in its first quarter report the industrial and logistics market has developed nearly 100 million square feet during this period, the third largest in history and a record 376 million square feet under construction.

Rents for the quarter were up 7.1% from the same period a year earlier, to a record high of $ 8.44 per square foot, according to CBRE. The firm wrote in follow-up report Last month, prices in coastal markets near settlements and inland ports rose by double-digit percentages. In Northern New Jersey, average base rents for industrial properties jumped 33% in May from a year earlier, in California, the Inland Empire increased 24%, followed by Philadelphia (20%).

“The need to have premises in these markets, coupled with record low vacancy rates, has often led to a tenant-to-tenant war of rates that has driven rental rates higher,” CBRE said in a statement.

Rapidly rising prices

The wheels were in motion before Covid-19 hit the US in early 2020. Amazon has already begun to unfold. next day delivery to default option for Prime members and big boxes like Best buy as well as Walmart were in a hurry to add execution space try to keep up.

The pandemic has accelerated everything. Consumers were stuck at home and ordering more items, while physical stores had to go digital to stay afloat.

Food delivery added density to the market as Instacart as well as Postmen suddenly flooded with orders from customers who did not want to enter Costco, Albertsons or Kroger keep. Instacart is currently planning a network of fulfillment centers loaded with grain picking robots, according to Bloomberg, as well as purpose facilitated the execution on the same day at the expense of the so-called sorting centers

In addition to rapidly changing consumer behavior, the pandemic has also demonstrated the fragility of the global supply chain. With objects in China and elsewhere, where shops were shuttered, there was an acute shortage of clothes, auto parts and packaging materials.

Retailers have responded by providing more storage space to cushion the impact of future shocks. James Coman, CEO of ElmTree Funds, a private equity firm specializing in commercial real estate.

“The reorientation of production is gaining momentum,” Coman said. Companies “bring more food to shore and they need a place for their products so we don’t end up in a different situation where we are now.”

According to him, all these factors contribute to the sharp rise in prices. In addition, construction costs are higher due to inflation and supply constraints, and companies are building more complex facilities filled with robots.

“You have automatic forklifts, conveyor belts and automated warehouse search engines,” Coman said. “All this is what the world is heading towards.”

Amazon is introducing new robots named Bert and Ernie to run its fulfillment center.

Source: Amazon Inc.

Capitalizing on the long-term need for order fulfillment equipment and logistics, ElmTree has acquired nearly $ 2 billion worth of industrial space in the past seven months, ahead of previous years, Coman said. He estimates the US will need an additional 135-150 million square feet a year to support e-commerce growth.

For ShipBob, the e-commerce boom has played a major role in its business model. But competition for space is simultaneously forcing the company to reckon with higher costs.

ShipBob works with brands like a perfume company. Dossier, a manufacturer of powdered energy drinks Juspy and Tom Brady’s sports and fitness brand TB12by providing a wide network of fulfillment centers for fast and reliable delivery and supply and inventory management software.

Unlike the retail giants, ShipBob doesn’t chase big football-field-sized fulfillment centers and only rents a few of its properties. Rather, he is looking for warehouses, which are usually family owned, ranging from 75,000 to 100,000 square feet and some unused space. He then equips them with ShipBob technology and pays based on order volume and space used.

Although ShipBob does not sign leases, it is competing for warehouse space, which now occupies much more valuable property than it did a year ago. CEO of ShipBob Dhruv Saxena said his company should be located in regions such as Southern California and Louisville, Kentucky, in major transportation and logistics centers, despite the rapid rise in prices.

“We need to find ways to place stocks closer to the end consumer, even if it has a lower margin for us,” Saxena said in an interview late last month after his company raised $ 200 million with an estimate exceeding $ 1 billion.

ShipBob competes directly with a number of order fulfillment outsourcing startups including ShipMonk, Deliverr and Shippo. These four companies have raised nearly $ 900 million over the past year.

Not just Amazon

Saxena said the main reason small retailers turn to ShipBob is to avoid the cost and hassle of finding a place to fulfill orders and hiring the right workers. He compared this to companies that outsource their computing and data storage to Amazon Web Services and pay for the capacity they use, rather than renting their own datacenters.

“The same math applies,” Saxena said. “I can open a warehouse, hire people and equip the software, or I can convert these fixed costs into variable costs where I pay on a transaction basis.”

ShipBob employees with CEO Druv Saxena in the middle

Ship Bob

Nate Faust is in the very early stages of construction. Olive, an e-commerce startup that works with brands to offer more sustainable packaging and shipping options using recycled packaging materials and supplies.

Olive opened its first two 30,000-square-foot warehouses last year, one in New Jersey and the other in Southern California. Faust, who previously co-founded Jet.com and then worked at Walmart after the acquisition, said that if he entered into these leases today, they would easily be 10-15% higher.

Olive is not actively looking for new fulfillment centers and will not renew leases until February, but Faust said startups must be opportunistic. He works with real estate firm JLL, which he says is constantly looking for attractive premises.

“We keep making them look for them, because now the industrial space is very limited,” said Faust. “If we find something perfect for what we are looking for, it makes perfect sense to have overlapping leases.”

Vic Chawla, a partner at real estate technology venture capital firm Fifth Wall, said problems in the real estate market are prompting more new brands and sellers to switch to an outsourcing model.

“As a single e-commerce business, it is very difficult to try to provide an attractive space and run your business,” Chawla said. “The line of people trying to get into industrial buildings is already outside the door.”

Many tenants occupying this line are traditional large third party logistics providers (3PLs) such as CH Robinson as well as XPO Logistics just like UPS as well as FedEx… At the top tier of the market, Amazon, Walmart, and Target are taking place to accelerate distribution and, in Amazon’s case, manage execution in their huge third-party seller market.

Prologis, the largest U.S. industrial property owner, says May inform this utilization rate, which measures how much space is being used, approached 85%. The vacancy rate is 4.7%, close to a record low, the company said.

Amazon is the largest customer of the real estate company, at 22 million square feet, according to the latest report from Prologis, followed by Home Depot with 9 million, followed by FedEx and UPS. annual report… Walmart is ranked seventh.

In April, a Prologis analyst asked which types of clients were most active in leasing deals.

“E-commerce is an important component, but not only Amazon”, Michael Carless– said the main client of Prologis in response. “Of course, they are the most active buyers. But we are seeing a lot of activity from Targets, Walmarts, Home Depots and a lot of evidence that Chinese players are also making their way to the US and Europe. “

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