2020 Logistics Real Estate Year in Review

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2020 Logistics Real Estate Year in Review

Featuring Michael Landsburg , Chief Development Officer

How would you summarize the last year in logistics real estate?

Real estate markets saw dramatic impacts over the course of this past year, some positive, some negative. We came into this year on good economic footing with good growth projections across a lot of different industries. Then the COVID-19 pandemic hit and everything came grinding to a halt in the industrial and logistics space. Things slowed down slightly in the middle of March and early April, but it became apparent that logistics real estate was going to be a critical component of solutions going forward for the pandemic, whether that was ordering stuff online, delivering personal protective equipment, or ultimately building logistics networks for a vaccine and medical supply distribution.

Logistics real estate had a momentary pause and then ramped up dramatically. We have had a very busy year where we completed a lot of record transactions. In other sectors of the real estate world, there have been impacts to retail, hospitality, and certainly offices have had dramatic impacts with most working remotely. There were some things over the course of the year that nobody had ever seen before. The other area that certainly grew was all the technology we use, how we meet, and how we complete transactions. It’s been amazing to see the resilience, the creativity, and the know-how of the NFI workforce, as well as the overall population throughout the world. There’s been a lot of people that this has impacted really dramatically in terms of loss of employment or in a more personal way. We feel very fortunate that we’re healthy, and that we’re continuing to perform and provide services for our customers and get products to the people that need them, when they need them. 2020 will go down as a year unlike any other, and the industrial logistics real estate space certainly was a part of that.

What was the most challenging part for shippers in regards to real estate this past year?

The most challenging part of 2020 for our shippers, our customers, and even us, was really the uncertainty every day. We went back and looked at a timeline from late February through May and it was amazing the amount of major decisions that were being made almost on a daily basis. We’d look at all the information at that moment in time and try to react, then all of a sudden it seemed like the next day there was a whole host of new information that came out which was really challenging.

How did NFI help customers navigate through 2020?

NFI helped our customers navigate through 2020 by continuing to be transparent with our customers. Internally, we built a culture and a strategy to be prepared for circumstances like this. Although no one ever thought that this would happen, to be able to have an organization that can react on a dime and make major shifts in what we’re doing to solve customer problems, that doesn’t happen overnight. It’s happened over years of building a culture in the company. That transparency and partnership with our customers and the focus on what they needed to do, and when they needed to do it. We were also realistic about what we could do and how we could do it. That won us a lot of points with our customers and the shippers out there that NFI is a trusted partner and one that can get the job done.

How do you think this past year shaped the logistics real estate market for years to come?

The impact of 2020 on the real estate market is still unknown. Our portfolio is primarily made up of warehouse distribution and logistics assets. 3PL occupancy of industrial real estate and the demand for industrial real estate skyrocketed during 2020 when it was already on an upward swing. There were stats that came out that said the pandemic is going to accelerate the adoption of e-commerce by five to 10 years, the projections of where we would be in 2030 now became 2025. The demand for warehouse and distribution space and various transportation logistics assets became dramatic. It seemed like there were millions of square feet leased on an almost daily basis to solve problems, build inventory, and build supply for our customers. I think that will continue for the foreseeable future and certainly into next year. It seems like people around the country that didn’t know the word logistics or warehouse or distribution before 2020, certainly know it now. Although the population that was ordering goods and supplies online and getting it delivered to their house, they are now shopping out of a warehouse, not out of a retail store. That trend will not go away. Even when the pandemic subsides we’ll see continued growth of logistics and distribution needs. We are poised to be there as a solution.

2020 will have an impact on other sectors of the real estate market almost as dramatically, if not more dramatically, than the industrial and logistics space. There will be a continued impact on retail where it is not going away, but it’s going to change dramatically. How people use an office will certainly in the near term be impacted. Lots of employees are working remotely which influence office space, layouts, and design. Needs and requirements long-term remains to be seen. What happens to the hospitality and hotel industry is unknown, ultimately people will get back to traveling, but will business travel be the same with the advent of virtual meetings and teleconferencing? We have good visibility to the industrial and logistics sector of the real estate market and see that on an upswing for the next two, three, four years, for sure. Whereas, the other sectors are more unknown.

What were frequent requests you received in regards to logistics real estate?

Some of the design changes or new specifications that have come up in distribution buildings and logistics facilities in the short-term related to the pandemic were things like air changes, filtration, air circulation, cleanliness, or new technology to clean buildings faster and more thoroughly. We’ve seen more creation of various break areas or additional break areas so that employees within these facilities can physically distance the best they can. Some of those things will be here to stay; however, some may not be needed as the pandemic subsides. Certainly what has become clear is a continued focus on employee engagement and satisfaction and the deployment of amenities within the facilities. 

In addition, some of the design changes have been balanced with growth in trailer or car parking needs as more people work in these facilities or there was a change in inventory management. Shippers are looking at larger supply stock or safety stock, so there may be different areas within the warehouse with a movement of high-velocity goods versus standing stock. Some of the dimensions or layouts may change as well, but it’s still relatively early. Some of the layouts that are being designed now are not that dissimilar from pre-pandemic.

What has investment in the industrial real estate market looked like this past year?

One of the other big shifts in the real estate market as a result of this year has been the capital shifts and investment dollars of institutions focused on industrial, which is another driver for our space. Now allocation has shifted where they don’t want to invest in retail or hotels, but industrial. As a result, there has been a whole host of new players wanting to invest in industrial, which continues to put pressure on the supply side where pricing for new developments, land acquisition, and even rental costs have grown dramatically. There was a momentary dip in March and April, but we’re seeing capital interest in pricing at the end of this year that is significantly higher than the beginning of the year.

Michael LandsburgMichael Landsburg is the Chief Development Officer of Real Estate at NFI and has been with the company since 2005. He is responsible for managing the real estate activities for the NFI owned and leased portfolio which spans over 50 million square feet of logistics space. Michael and his team develop customized industrial real estate solutions for shippers across North America.