Brian discussed the impact of COVID on industrial real estate, what he’s seeing in the market today and what’s on the horizon in “Dawning of the industrial real estate revolution.”
Alessandra: I’m going to start sort of big picture here because we haven’t caught up in a while. How has COVID impacted industrial real estate?
Brian: I think it’s had a pretty substantial impact. I think at the beginning, there was some uncertainty, but that was really short-lived. Pretty quickly we realized it was going to be positive for industrial real estate in that we were going to see more development, more absorption, and really a shift in fundamental behavior. So I think it led to a positive outcome for industrial real estate.
Alessandra: The e-commerce piece – how it’s changed every aspect of our lives and certainly has had an impact on real estate – Can you talk a little bit about how that played out?
Brian: E-commerce as we’re all aware, was growing, to begin with, pre-COVID, and then I think we really saw that trend accelerate. So that’s what I’m talking about, a change in behavior. Going into COVID, we saw really a shift from physical retail to more and more e-commerce. I think that’s both on a consumption basis, people changed their behaviors, and fewer people are going into stores. From a supplier/retailer standpoint, how they handle inventory, how they locate facilities, and really shifting maybe resources from a retail place to a retail store, to an industrial warehouse. This is an industrial revolution, so to speak, in real estate. Something that you see maybe on the 100-year scale versus sort of a near-term cyclical factor.
Alessandra: For years we’ve talked about the ‘Amazon effect.’ What are you seeing now, as far as the impact of the Big Three when it comes to how other businesses are responding to different expectations?
Brian: Really what Amazon started, and I think other companies of that scale are focused on, what they were doing a few years ago, I think is now much more common. And what we’re seeing is that’s really resulted in a lack of national supply. So, there are not enough warehouses to really accommodate the level of e-commerce and supply and consumption that’s coming out of those warehouses. So, I think that’s where we see this fundamental long-term change, is that it’s not maybe a cyclical issue. It’s a longer, like I mentioned, a hundred-year type concept. So, we’re seeing a lot of the smaller suppliers, a lot of the 3PLs, really coming in and looking at an e-commerce strategy where, before, I think that was much more germane to the top two, three, five retailers, e-commerce providers.
Alessandra: What [do you think] about the term ‘coopetition?’
Brian: These are all interesting concepts that we think are so new. That’s probably one of the challenges as an investor is, which concepts can you get behind, and how do you look at retailers and their strategies? And so, I think these are all really interesting. When you come to a conference like this, it’s great to see the different strategies the BCOs and retailers are looking to implement. You see Nike’s doing a lot of things that are interesting. You see, Amazon’s always, I think, a good and bad pressure on retailers. So, I think it’s kind of exciting times. It’s not always easy to know which direction each particular e-commerce or BCO’s going to go, but I think, again, it’s on the macro scale. There are probably more opportunities for different folks. So, it’s pretty exciting.
Alessandra: In the summer, when we did the podcast, you talked a little bit about the model of returning to stores and how the reverse logistics piece was being impacted and changing and evolving. Any thoughts on what we might see next that would impact the industrial real estate market?
Brian: We’re seeing all different types of phenomena. We’re seeing the repurposing of retail stores. So, you’re seeing the big Walmart and Target retail stores being converted into a last-mile distribution. I think that’s an interesting way to take advantage of existing infrastructure. You’re seeing, I think, a lot of retailers, carriers, and transportation providers, look at where they position assets, and how they utilize assets. So, reverse logistics is really just in its infancy. As there’s going to be pressure on the cost of e-commerce, that’s going to be one of those items that people, again, don’t probably have a perfect solution for today, but I think you’re going to continue to see a lot of creative ways to handle reverse logistics and e-commerce, in general.