Investing in malls -- or any brick-and-mortar retail establishment for that matter -- might not be your go-to investment vehicle these days, since demand for in-person shopping is down. But people still want goods.
All the items people used to buy in stores but are now ordered online need to be shipped for end-user pickup or delivery. These items need to be stored somewhere, and that somewhere is often a warehouse, demand for which soared 51% in the first half of 2020. Foreign investors are on this. Should you be too?
The Wall Street Journal reports France, Germany, and Korea are investing heavily in U.S. warehouses. For example:
- France: AXA Investment Managers of France, after investing $875 million, now owns a majority stake in 27 of Boston-based Cabot Corp.'s (NYSE: CBT) industrial properties.
- Germany: Allianz Real Estate of Germany agreed to buy a 49% stake in a logistics portfolio managed by Crow Holdings of Dallas.
- Korea: The National Pension Service of Korea spent $2 million to buy 23 warehouses managed by Stockbridge Capital Group of San Francisco.
Although foreign investors have invested in U.S warehouses before, the volume has "greatly accelerated" since the pandemic, says the WSJ article.
Types of warehouses
"Warehouse" is a broad term. For investment purposes, it's helpful to understand the different terminologies regarding this business and what these terms mean.
A commercial building used to store goods. Warehouses are typically central locations for receiving, storing, and distributing products.
The management of the flow of both raw materials and the finished products. Logistics encompasses everything from manufacturing to delivery, including housing and packaging.
Places that receive, sort, and ship goods. Transfer centers don't store products; they immediately ship them out after receiving them.
Places that store, sort, and manage inventory. Distribution centers pick out inventory based on orders. Inventory is inspected, packaged, and shipped so the recipient receives the order in a timely manner.
Processing distribution centers
A subset of a distribution center that handles more complex shipping needs, such as shipping food or assembling parts before shipment. It operates more like a factory in that it needs to be temperature-controlled and typically has production lines like the ones factories use.
Places that handle all aspects of internet sales. Fulfillment centers receive orders from end users, package the order, ship it, manage inventory, manage customer data, handle returns, deal with complaints, and process payments.
How to invest in warehouses
Although maybe not as flashy as office and retail space, warehouses are proving to be a solid commercial real estate investment, as current demand for them is great. But there hasn't been a whole lot of new construction of warehouses. Commercial real estate investors might want to look at Class B, C, or D buildings.
The upside to Class B, C, and D buildings is that they're available. The downside is they might lack the type of systems necessary to process orders, such as robotic systems. These older buildings could be retrofitted to work, however. New warehouses could be built ready to go, but the problem is finding prime locations for them.
Before investing in a warehouse, determine the size you're interested in, since warehouses are priced by square foot. Also, consider the condition of the space (can it accommodate a forklift, for example), whether there's already a tenant for the space, and whether it's in a good location, such as near a transportation hub (highways, airports, or seaports).
The Millionacres bottom line
If you're a real estate investor who traditionally invests in retail, such as malls, you might want to consider shifting to warehouses, as foreign investors have been doing. E-commerce isn't going away, and retailers will need places to store products. Investment opportunities exist in logistics facilities themselves and in industrial real estate investment trusts (REITs).