The value of industrial real estate and warehouse space continues to rise as ecommerce companies like Amazon support speedy deliveries to urban centers. Commanding 37% of the digital retail market, Amazon is projected to generate half of all online sales by 2021.1 According to Moody Analytics data, an anticipated 782 million square feet of new warehouse space will enter the North American market by the end of 2019.2 As such, savvy investors have been casting their sights on warehouse and industrial properties in prime urban areas.
This exclusive Property Matters takes a closer look at significant real estate investments that have taken place in the past two years, in direct response to the online real estate boom.
In the first four months of 2018, warehouse space sales in New York’s outer boroughs increased by 77%, reaching $2.6 billion, according to Real Capital Analytics:
- 50 properties valued at $655 million traded in Brooklyn;
- 41 properties valued at $550 million traded in Queens; and
- 22 properties valued at $160 million traded in the Bronx.
In the first quarter of this year alone, industrial real estate sales hit $16 billion—the second-highest number in the sector's history. This is a 20% increase over last year, according to JLL, a professional services firm. Vacancy rates for industrial real estate are also down to a historically low 5.1% nationwide, according to CoStar, a commercial real estate database.
"Generally the industrial market is one of the best sectors to invest in," says Andrew Chung, CEO of Innovo Property Group, an industrial developer working on a 700,000-square-foot industrial project scheduled to be completed in 2020 in New York.
Real estate investment trusts (REITs) that specialize in industrial properties, such as Prologis, Rexford Industrial Realty, and Terreno Realty Corporation, are outperforming REITs that focus on malls, residential rentals and office buildings. These three companies all returned more than 16% in the past year, crushing other types of real estate and beating their own peers in the Bloomberg REIT/Industrial/Warehouse Index, which reaped an 8.3% return.
Last year, Prologis, a leading industrial REIT, purchased a 200,000-square-foot warehouse at 1055 Bronx River Avenue in the Bronx, for almost $30 million. The building was formerly a discount warehouse for ABC Carpet & Home.
Earlier this year, Prologis purchased a 350,000-square-foot recently finished warehouse in Maspeth, Queens for roughly $265 million, one of the highest prices paid for warehouse property.
In March, Bulova’s three-acre corporate headquarters, just off the BQE in Woodside, Queens, sold for $25.2 million to a REIT, Terreno Realty Corporation.
Terreno has tapped Eastern Consolidated to lease the complex, which includes an 83,000-square-foot, high-bay warehouse featuring seven loading docks, and two surface parking lots totaling approximately 91,000 square feet.
As online shopping continues to cut into traditional retail, some shopping centers are contemplating a switch to a business model that focuses on ecommerce. This includes exploring the prospect of converting malls and shopping centers into warehouses to meet the growing demand for last-mile distribution.
The Wall Street Journal reported that warehouse landlords say they like former malls, because the shopping centers occupy swaths of space relatively close to where consumers live or near main highways.
But it isn’t easy to convert a mall into logistics space. Developers say it takes a community ready to accept that the mall has failed as well as understanding that there are viable job opportunities in logistics real estate.
Due to the lack of industrial space in the metropolitan region, one local developer is planning to erect one of the city’s first multistory warehouse buildings. Earlier this year, Triangle Equities, led by Lester Petracca, purchased a large parking lot near JFK Airport, with plans to erect a three-story warehouse on the parcel. Triangle, in conjunction with investment firm Township Capital, purchased the 3-acre site at 130-24 S. Conduit Avenue and will eventually construct a 300,000-square-foot 3-story warehouse with parking.
When it comes to investing in industrial real estate, it is clear that necessity is the mother of invention. As investors tailor their strategies in response to the growing needs of the ecommerce market, we will continue to see rapid transformations in urban hubs.