The rise of industrial real estate over the last twenty months has been well documented. Across all markets, significant tenant demand, coupled with scarcity of available product and poorly-performing office assets, has allowed rental rates to appreciate, sale processes to become highly competitive and transaction prices to reach new watermarks. At the forefront of this movement is Amazon, the leader in the e-commerce sector.
The Pandemic Push
Since the pandemic hit in March of 2020, the e-commerce sector’s role has been bolstered for several key reasons. Since people were encouraged to stay home more than ever, the money they previously spent outside of the house went toward ordering items online. As more people ordered items online, the demand for same or next-day delivery strengthened, creating a heightened sense of competition between retailers. As a result, Amazon, Lowe’s, Home Depot, Walmart, and other large retailers gobbled up significant industrial vacancies as they sought to fulfill the needs of buyers at home.
Industrial Triumphs
It’s safe to say that industrial landlords and developers are the big winners here. For example, Prologis is Amazon’s biggest landlord, and counts UPS, Home Depot, Walmart, and FedEx as clients. Their stock price has appreciated nearly 235% since March 2020. With competitive sale processes around high-value leased real estate from credit tenants, sale prices have increased, especially in regards to buildings with Amazon leases. Those sale prices have averaged $145/SF, versus $94/SF for sales with other tenants.
The Local Angle
Like it is in the rest of the country, Amazon’s reign is strong in Massachusetts. Eastern Real Estate recently cashed in on a $43M sale to NorthBridge just one year after purchasing 25 Computer Drive in Haverhill with an Amazon lease in tow. Down the 495 belt, real estate investment firm TA Realty recently sold 330/350 Bartlett Street in Northborough for $153.5M, in turn establishing a “record-low cap rate” for “stabilized industrial product.” Amazon’s incredible worth is the driving force behind these significant sales. Investors recognize the massive value in having Amazon as a tenant. This was true even before the pandemic, when Blackstone purchased $18.7B worth of Amazon-leased properties.
Amazon’s Amazing Trajectory
Not long ago, Amazon was largely known as an online bookseller. But these days, they sell everything. They encompass nearly all parts of the consumer economy, and it wouldn’t be a massive surprise to see them jump into a more significant ownership position and seek control of their own destiny with their real estate assets. Currently, their owned portfolio is dwarfed by their leased portfolio (~11.9M SF in North America versus 285M SF leased). However, the trend towards ownership is becoming much more prevalent, including a $49.8M building purchase in Revere, MA in May of this year.
Some may wonder whether Amazon’s move will make investors more cautious with industrial real estate, or if it simply means there’s a new large player in town. There’s also the question of whether the increased role of Amazon will help stabilize the wild rental appreciation we’ve seen over the last 20 months. Of course, Amazon is far from the only industrial game in town. There’s other e-commerce, cGMP, R&D, and manufacturing occupiers that have also significantly bolstered industrial leasing and sale fundamentals. But with one large occupier potentially fading away, many wonder if we will see some semblance of a reset. Right now, there’s no defined answer.
The industrial landscape is more important than ever. As e-commerce shows itself to be a game-changing force, Cresa’s team of experts can help your organization identify emerging markets and really hone in on a real estate strategy that works for you.
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