The Covid-19 pandemic will likely influence industrial real estate in at least three ways, 1. encouraging suppliers to increase inventories, 2. heighten the demand for buildings supporting e-commerce and 3. increasing demand for the incumbent last mile service providers.
The initial impact of the Covid-19 was an unprecedented “Supply Shock”. The sudden close down of the Chinese economy severely disrupted the world's supply chain. Small and Medium sized Chinese companies producing parts for downstream factories, prevented the completion of finished goods both inside and outside of China. To safeguard against future disruptions, it is very likely that U.S. companies will increase inventory levels, creating a buffer for future supply side shocks. Normally carrying extra inventory would be a financial burden, but currently low interest rates will reduce these costs.
Increased inventories will require well located warehouses, less than a four hour drive from major markets, with plentiful labor. New locations will move beyond the belt of extremely high land values for “Core Plus” real estate markets near the major Ports, such as Exit 8A in NJ and the Inland Empire in California. This new wave of demand will likely create new core markets further inland.
As we all practice social distancing, E-commerce has transitioned from a convenience to a necessity, creating new customers, many who will never return to the old way of shopping. Online grocery buyers will no longer be limited to young, affluent urban households, who are early adopters of technology. The sudden surge in demand for online goods has quickly expanded the market beyond Amazon and Walmart’s reach. Instacart plans to hire 300,000 more workers as demand surges for grocery deliveries, overnight converting the local grocery store into a viable competitor to the online grocery incumbents. The expansion of online delivery will likely be the knockout blow to marginal retailers, transitioning the need for staging goods from distributed prime traffic locations to larger more efficient logistics locations.
Many of the last mile locations required to accommodate the anticipated expanding volume of ecommerce home delivery are already in place. Fedex, UPS and the USPS combined have more than 30,000 last mile locations and 350,000 trucks. For comparison, Amazon at the end of 2020 will have 250 last mile locations and 30,000 trucks. Building last mile delivery networks is a long game that takes decades. New and growing market entrants will expand by injecting their shipments into existing and proven delivery networks. Existing brick and mortar stores transitioning to E-commerce home delivery will also perfect their “Click and Collect” services at minimal cost.
The need for social distancing will undoubtedly increase the proportion of purchases on-line, but all is dependent on the timely recovery of the economy. The Spanish Flu outbreak in 1918 lasted almost two years and infected about a quarter of the world's population. If we can get 2 hour delivery of beer and bananas, there is hope to remedy the inexplicable global shortage of toilet paper and perhaps quickly develop a vaccine for Covid-19.
The initial impact of the Covid-19 was an unprecedented “Supply Shock”. The sudden close down of the Chinese economy severely disrupted the world's supply chain. Small and Medium sized Chinese companies producing parts for downstream factories, prevented the completion of finished goods both inside and outside of China. To safeguard against future disruptions, it is very likely that U.S. companies will increase inventory levels, creating a buffer for future supply side shocks. Normally carrying extra inventory would be a financial burden, but currently low interest rates will reduce these costs.
Increased inventories will require well located warehouses, less than a four hour drive from major markets, with plentiful labor. New locations will move beyond the belt of extremely high land values for “Core Plus” real estate markets near the major Ports, such as Exit 8A in NJ and the Inland Empire in California. This new wave of demand will likely create new core markets further inland.
As we all practice social distancing, E-commerce has transitioned from a convenience to a necessity, creating new customers, many who will never return to the old way of shopping. Online grocery buyers will no longer be limited to young, affluent urban households, who are early adopters of technology. The sudden surge in demand for online goods has quickly expanded the market beyond Amazon and Walmart’s reach. Instacart plans to hire 300,000 more workers as demand surges for grocery deliveries, overnight converting the local grocery store into a viable competitor to the online grocery incumbents. The expansion of online delivery will likely be the knockout blow to marginal retailers, transitioning the need for staging goods from distributed prime traffic locations to larger more efficient logistics locations.
Many of the last mile locations required to accommodate the anticipated expanding volume of ecommerce home delivery are already in place. Fedex, UPS and the USPS combined have more than 30,000 last mile locations and 350,000 trucks. For comparison, Amazon at the end of 2020 will have 250 last mile locations and 30,000 trucks. Building last mile delivery networks is a long game that takes decades. New and growing market entrants will expand by injecting their shipments into existing and proven delivery networks. Existing brick and mortar stores transitioning to E-commerce home delivery will also perfect their “Click and Collect” services at minimal cost.
The need for social distancing will undoubtedly increase the proportion of purchases on-line, but all is dependent on the timely recovery of the economy. The Spanish Flu outbreak in 1918 lasted almost two years and infected about a quarter of the world's population. If we can get 2 hour delivery of beer and bananas, there is hope to remedy the inexplicable global shortage of toilet paper and perhaps quickly develop a vaccine for Covid-19.
The pandemic has left a lasting impact on global economy and markets to lifestyle of people. Thank you for this clear explanation and its impact on upcoming events. HOA website
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