Real Estate Journal — Mid-Year Review — June 24 - July 14, 2016 — 15C
M id A tlantic
By Steven Denholtz, Denholtz Associates Opportunities in industrial real estate — and the impact of e-commerce
M uch has been said about the impact of e-commerce, specifi-
suppliers have emerged, such a door-to-door organics. Ama- zon has adapted, managing its transactions, delivering some products while its vendors deliver others. Such traditional retailers as Macy’s have signed on – all of the retail giant’s stores now deliver. Wal-mart offers “click to collect,” and Google offers “shopping express.” E- commerce now accounts for 13% of Nordstrom’s total sales, 15% of Nike’s, and 4% of The Home Depot—and those num- bers are growing. And the technology contin- ues to evolve. RFID, or radio-
frequency identification, for example, utilizes electromag- netic fields to automatically ID and track tags attached to the shipped items. In the bigger picture, total retail sales are showing a 3% average annual increase. Comparatively, total Internet sales are growing by 11% an- nually. As to the impact on the industrial real estate that supports logistics, properties are seeing a 20% increase in rents nationally in primary markets, and 14% in second- ary markets. The spread to 10- year Treasuries is 2 vs. 5.1% and 310 basis points, with $50
billion of annual investment sales encompassing 10 billion square feet in the past year. Foreign investment amounted to 37.4% of total sales. Nationally, the vacancy rate for industrial is 6.7%--well below the cyclical low of 2007. The net absorption for the past year was 219 million s/f, and the overall tightness of the industrial market resulted in 170 million s/f of new con- struction. For New Jersey, the North- ern New Jersey market totals 350 million s/f, and Central New Jersey offers 271 million s/f. Average industrial ask-
ing rents are $6.20 psf in the northern part of the state, and $5.31 in South Jersey, and the state has seen three years—12 straight quarters—of positive absorption. And 90% of new leasing is warehouse/distribu- tion, not manufacturing. The overall vacancy rate is a scant 7%—and New Jersey has an ideal location between and within major population centers. Overall, 84% of new construction is speculative, and that new construction is coming in a larger market where the average property age is 35-50 years old. On the continued on page 16C
cally Inter- net retai l - ing, on the br i cks - and mortar re- tail. Indeed 10% of retail spending is n o w d o n e o u t s i d e o f
stores. Internet sales at the top companies has been grow- ing by 25% year-over-year. The attraction: Click-to-ship from Amazon is available in as little as 20 minutes. Same- day and next-day service also means that product inventory has to “get local.” As a result, logistics has been impacted to the extent that the major e- commerce companies have in- creasingly invested in close-in distribution facilities in major metro areas instead of placing their facilities in remote areas outside of population centers. In a national industrial real estate market that totals between 10-15 billion s/f, new product for fulfillment has been adding 100 million new square feet. The statistics show 15% growth of 3-com- merce annually, reaching $300 billion in the U.S. Globally, the umber is $23 trillion. There are also a number of ways for consumers to receive the products they purchase online. Those options include directly from an online retailer like Amazon, or directly from amanufacturer, through retail locations, or from third-party distribution centers. The va- riety of options is part of the impetus behind e-commerce’s steady growth. Indeed, more options and more distribution centers equals shorter delivery times, a key factor in today “must-have-have-it-now” re- tail environment. And that can be achieved by a consumer never leaving home to go to a retail store. The most expensive and time-sensitive products in terms of delivery include food and electronics. Less sensitive in that regard are such prod- ucts as furniture and apparel. The nature of the e-com- merce business is changing the way others do business. For example FedEx, which has seen its business grow substantially because of the e-commerce trend, is now charging suppliers by “di- mensional weight” and new
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