Research shows a significant pipeline of industrial demand, can we THINK™ like supply chain managers to predict where it will go?
Our team hopes everybody is staying safe and healthy during these unprecedented times. 5 months ago, California and our office went into a state of lockdown. Businesses temporarily shut their doors, some fully closing in consequence. The state of the economy and real estate sector shifted overnight. The industry collectively held their breath in anticipation of what was to come.
Friday, March 18th, we were both new to the functionality of working-from-home. We sat on a Zoom call that morning discussing the market implications, whether it was derived from Peter Linneman’s Webinar or general market sentiment. The bottom-line from our discussion was that our firm needed to take a proactive approach to recent events and that a refresh in our investment strategy was necessary. Through significant macro & microeconomic research over the course of the next two weeks, we arrived at a high-level strategic concept of pursuing logistics-based industrial assets. Once we had a foundation, we needed to piece together support around this idea.
Two primary drivers reinforced our reflections: the rebirth of domestic production (offshoring to onshoring manufacturing) and the surge of e-commerce.
Over the past 2 years, retail e-commerce sales, as a percentage of total retail sales, have increased by 500 bps. The volume of those purchasing staple and discretionary items at the touch of a button has only increased from the onset of the virus, with many market experts believing in an irreversible shift from traditional brick-and-mortar sale. The previous, intertwined with the growing argument for domestic manufacturing, invokes the need for logistics-based assets in the near future. The fact that the opportunity cost margin of offshoring production of final goods is shrinking, due to on-going trade discussions/uncertainty & increasing labor costs overseas, supports the prior. Our vision encapsulates these market shifts, in our pursuit of suburban distribution centers (best utilized for same-day delivery), city-center distribution centers (1-2-day delivery), and manufacturing facilities.
As a result of this accelerated e-commerce adoption, the increased inventory levels required by retailers could generate square footage demand for logistics-based industrial equivalent to the total supply of industrial assets in the Inland Empire. Now that we have our rationale behind the investment, where does the demand go, and how do we intend to capture it? That’s where the proprietary THINK™ process came into play. Our team developed a quantitative site selection formula that incorporates the use of multivariable regression analysis to find markets that are best positioned to serve future logistics operations.
In effect, we had to understand what drives the logistics industry, where supply chains would thrive, and ultimately, we had to THINK™ like a supply chain manager.
If you have any interest in learning more about the acquisition & financial criterion within our 3rd offering, please reach out to the experts at Intersection.