Amazon is making a cold sweat in a sweltering warehouse market

The decision by Amazon, which wants to reduce the size of the suite in online commerce, threatens to weigh on the growth of the highly dynamic industrial real estate sector.

For now, demand from other retailers should act as a buffer and support occupancy rates and rents, according to analysts.

In this sector, rents, occupancy rates and sales volumes started rising before the Covid-19 pandemic, but have exploded during the health crisis. From Amazon to Walmart to Target, retail giants have flocked to warehouses and fulfillment centers.

These trends are starting to slow in some markets, not least because after posting its weakest growth in two decades in April, Amazon decided to sublet some of its warehousing sites. The group is the largest user of industrial space in the United States: It owned or leased, at the end of 2021, about 3,500 hectares, according to MWPVL International, a supply chain consultancy that tracks demand from Amazon.

To successfully keep up with demand from consumers stuck at home, the group has grown at full speed during the pandemic. The slowdown in its activity is likely to worry promoters who were hoping to propose their projects on Amazon.

Certains vont aussi se trouver en concurrence avec le groupe, qui veut sous-louer une petite centaine d’hectares d’entrepôts (et potentiellement trois fois plus), et les innombrables constructions lancées par tous ceulare demand que une qui- une very strong. Prior to Amazon’s announcement, Green Street was expecting about 3,700 hectares of additional supply in 2022.

But if the e-commerce giant is subletting a portion of its space, “that’s another form of proposition,” assures Vince Tibbon, an analyst at the real estate analysis firm. “All of a sudden, it explodes,” he adds.

Industrial site sales volume fell to $6.5 billion in April, down 43% from the same period last year

However, analysts believe that the industrial real estate market is still very strong: vacancy rates are low and demand (particularly from traditional users of these spaces, such as Walmart, FedEx and DHL) remains strong. Rents also continue to rise in most markets as companies want to stock more to avoid supply issues.

“Other companies continue to ramp up efforts, which should offset Amazon’s negative impact,” said Evan Serton, a specialist at Cohen & Steers, a real estate investment firm.

Equus Capital Partners, the private equity firm, has already leased more than half of the 11 million industrial space it owns in fast-growing states like Arizona, Florida and Virginia, says Kyle Turner, chief investment officer.

It sums up “You make plans, foundations sink, tenants arrive, and it gets rented.”

But for property services giant CBRE, rental volumes this year are expected to drop to around 7,900 hectares after last year’s historic record high (9,200 hectares), partly due to limited supply.

Investors’ appetite for warehouses and other industrial spaces has also begun to wane. Stocks of real estate investment firms (REITs) that specialize in warehousing are down 22% this year, compared to a 13% decline for the sector index and the S&P 500, according to Green Street. Hurt by a hostile market reaction to rival Duke Realty’s takeover bid, Prologis, the largest industrial real estate investment trust, has fallen more than average.

Industrial site sales volumes fell to $6.5 billion in April, down 43% from the same period last year, according to MSCI Real Assets, a decline that market participants largely attribute to the rise in interest rates, eroding profitability by increasing the cost of Debts.

Market volatility and price hikes are causing some buyers to renegotiate the terms of contracts already signed.

“We’ve seen negotiations on certain assets that were under contract,” confirms Ken Hedrick, managing director of commercial real estate services firm Newmark.

Amazon’s expansion into logistics centers accelerated when the pandemic hit. At that time, under the pressure of the rise of e-commerce, the market was already tight.

“If you are the boss [d’Amazon]When the world is under siege, the first thing you say to yourself is “Oh no, orders are flying away, we have to find capacity and storage space at any cost,” sums up Mark Wolfrat, President of MWPVL.

Amazon’s portfolio of industrial space has grown from about 2,500 hectares at the end of 2020 to about 3,500 hectares at the end of 2021, according to MWPVL. Before Amazon indicated it was shutting down, MWPVL believed the collection would reach 4,200 hectares this year.

The company is now counting 4,000 hectares in 2022: more than last year, but less than expected.

“It’s a bit like a freight train: it doesn’t stop suddenly,” he explains.

(Translated from the original English version by Marion Isard)

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