June 12, 2019

E-Commerce Logistics Demands Lead to Real Estate Boom.

Blackstone Group, the world’s largest private equity firm, just completed the single largest private real estate deal in history. So, what did they buy? Lush oceanside property primed for development? Perhaps a commercial district in the heart of the Big Apple, ripe for revitalization? Or maybe a cherry spot in one of the world’s hottest travel destinations?

Actually, it’s none of the above. Blackstone just invested $18.7 billion in boring, boxy, windowless warehouse space. 179 million square feet of it, to be exact.

Why? The answer is simple: e-commerce logistics.

The e-commerce boom has driven the demand for warehousing real estate through the roof, as these companies need more and more space to house their massive logistics operations. Amazon alone occupies over 288 million square feet of physical warehouse space, and they, along with competitors like Walmart and Target are continuing to grow at a rapid pace from an operational standpoint.

On April 25th Amazon announced they would be investing $800 million over the rest of 2019 to implement free 1-day shipping as the new standard for Amazon Prime members, a move which will no doubt require vast amounts of additional space to accommodate faster, more localized logistics. Chief competitor Walmart followed shortly thereafter, announcing their own intentions for free 1-day shipping, pressing even more demand for available warehouse space.

Where these monolithic retailers go, the industry follows, making every square foot inside these giant, boring, colorless football field-size boxes all that much more valuable in a time of aggressive expansion.

“Logistics is our highest conviction global investment theme today,” says Ken Caplan, co-head of Blackstone’s real estate business. “We look forward to building on our existing portfolio to meet the growing e-commerce demand.”

Last week’s deal with Singapore’s GLP (Global Logistics Partners) is a reinvestment in US-based logistics space by Blackstone, who sold all of their existing domestic warehousing operations to GLP for $8.1 billion back in 2015. With e-commerce continuing to grow, the company is now taking back these familiar assets and more to add to their massive $140 billion-dollar real estate portfolio.

“GLP was able to leverage our deep operating expertise and global insights in the logistics sector within four years to build and grow an exceptional portfolio,” said GLP chief investment officer, Alan Yang.

The 179 million square foot portfolio was highly sought after in the preceding months, not only by Blackstone, but also by domestic logistics space leader Prologis. Publicly-traded Prologis owns an eye-popping 455 million square feet of industrial real estate in the U.S. and has been nicknamed “Amazon’s Landlord” by Forbes.

For Prologis, who manages $97 billion in real estate assets worldwide, the e-commerce boom has played a critical role in recent successes. Since 2016, the company’s stock prices have doubled as trillions of dollars of merchandise begin the critical last mile of delivery at Prologis-owned warehouses.

“We are focused on the markets where there are large numbers of people and there’s lots of money in their pockets,” Hamid Moghadam, Prologis’ CEO, said in a 2017 interview with Forbes. “You rob a bank, because that’s where the money is. Where do you have consumption? Where people are.”

The secret to their success is the same as it has always been in real estate: Location. Location. Location. With other investors like Blackstone hoping to capitalize on these strategically-located logistics spaces, the war for the last mile in e-commerce takes yet another interesting and exciting turn.

Billions upon billions of dollars are at stake as companies like Amazon, Walmart, Kroger, UPS and FedEx fight for the right to move products to your door. For the companies who hope to be their landlords, they don’t see blank, white windowless warehouses. They only see green.

What do you think about the e-commerce real estate boom? Do you think these properties are a good investment now, or are we sitting on a bubble that is about to burst? We’d love to hear what you think. Sound off on social media now and join the conversation.