Real Estate: The Warehouse Opportunity

Written by: Global Thought Leadership | February 14, 2019

Chart courtesy of Clarion Partners. * Source: CBRE-EA, Clarion Partners Investment Research, Q3 2018, latest available figures. Past performance is no guarantee of future results. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.

 

THE BOTTOM LINE

  • Booming demand for warehouse properties is one of the unanticipated side effects of the rapid growth in on-line shopping – fueled by the general pickup in consumer spending over the decades, to the point that the consumer sector of the U.S. economy is estimated by some to comprise over 60% of the economy’s total size.
  • With e-commerce now accounting for 12% of total core retail sales, and forecast to grow to over 30% by 2030, the increase in demand seems unlikely to abate soon.
  • According to Clarion Partners, the main issue is the availability of warehouse properties suitable for today’s needs. U.S. warehouse stock has increased by about 75% over the past three decades. But the size of the average warehouse footprint has reached about 185,000 square feet (sf) – not large enough to meet the needs of the largest “bulk” warehouse clients, where the category size begins at 400,000 sf.
  • And with nearly 50% of existing warehouse properties built before 1980, and 80% of the total number of warehouse properties being smaller than 400,000 sf, there is tremendous potential for growth to accelerate, given buyer demand for space with modernized characteristics, including energy efficiency and reliable power – as well as sufficient space to conduct business at a scale needed for the economy’s current business needs.
  • These trends are behind both steady growth in rents, and a rapidly falling vacancy rate, which stood at 4.3% at the end of Q3 2018, the most recent figure available.
  • It’s clear that this segment of the economy could be positioned for growth. For investors looking to participate in this sector at a scale appropriate for individuals, it can help to have the benefit of the expertise, experience and in-depth research of a specialized firm like Clarion Partners.

Note: Industry data provided by Clarion Partners.

This does not constitute investment advice. All information has been developed by Clarion Partners or obtained from sources that Clarion Partners believes to be reliable. This material is not an offer to sell or a solicitation of an offer to buy any security.

Investment in real estate entails significant risks and is suitable only for certain investors as part of an overall diversified investment strategy and only for investors able to withstand a total loss of investment.

Any information, statement or opinion set forth herein is general in nature, is not directed to or based on the financial situation or needs of any particular investor, and does not constitute, and should not be construed as, investment advice, forecast of future events, a guarantee of future results, or a recommendation with respect to any particular security or investment strategy or type of retirement account. Investors seeking financial advice regarding the appropriateness of investing in any securities or investment strategies should consult their financial professional.

 

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