WE EXPECT INDUSTRIAL REAL ESTATE TO CONTINUE GROWING. HERE’S WHY: PART II
PART II: TECHNOLOGY
We at Xebec are committed to the Industrial & Logistics (“I&L”) sector for many reasons, but continued growth of the sector is of critical importance to our success. Growth leads to expansion of the industrial real estate base, creating opportunity for Xebec to further its “Build-to-Core” strategy that is at the heart of value creation for our institutional partners and private Xebec investor community.
In Part 1 of this Blog series, we identified three factors that we believe will continue to drive the expansion of the overall base in the I&L sector: demographic trends, technology and supply chain infrastructure. In this Part 2 of the Blog series, we will explore the technology driver, and why we believe it is positively affecting demand in the I&L sector.
An important factor driving the ever-increasing amount of retail sales in the U.S. to e-Commerce channels is technological innovation. The modern world has seen the relatively recent inventions of the microchip, personal computer, internet and the smart phone. With the advent of such technological advances, the birth of online purchasing emerged as a new method of shopping in the early 2000’s and has continued to gain steam ever since. Online retail sales are a primary demand driver for the U.S. I&L sector and seems likely to continue for the foreseeable future.
Technological innovations continue to disrupt established modes of operation, inside and outside of the I&L sector. Take for example ride share companies like Uber and Lyft and their disruption of the traditional taxi and car rental models. Technology related to the I&L sector continues to evolve in a similar manner. Delivering on the promise of faster delivery of goods in the e-Commerce model has been a passion of the logistics supply chain community since the B to C (Business to Consumer) retail model was invented and has resulted in the significant reduction of the traditional “brick and mortar” component of the retail supply chain. On the other hand, according to CBRE, e-Commerce sales are compounding at approximately 15% year-over-year.
The advances in technology and efficiency have also led to the move away from the use of large fulfillment facilities on the outskirts of heavily populated metropolitan areas, to what are referred as “Infill/Last Mile” fulfillment facilities embedded in the heart of major metropolitan centers (“metros”). These “Infill/Last Mile” assets are being strategically located to efficiently deliver goods in the more efficient “hub and spoke” delivery pattern. The evolution of analytics of big data, such as tracking the “mouse clicks” by consumers, has further allowed “Infill/Last Mile” fulfillment operators to stock the products most often ordered and consumed in smaller, but densely populated areas of the metro. The growing use of “Infill/Last Mile” facilities has caused great demand in the infill I&L markets around the country. In places like the LA Basin, during 2018 CBRE reported commercial vacancies at historic lows, and greatly increased lease rates as users scoured the market any form of functional occupancy. In many submarkets of the LA Basin, Xebec has seen lease rate appreciation over 50% for newly delivered Class A facilities developed by us over the past several years.
Finally, technological innovations such as drones, driverless cars and trucks, and robotics systems within fulfillment centers are quickly evolving and will continue the ongoing evolution of the e-Commerce model. Xebec remains focused on these and other technology drivers and understands in this modern world that “the only constant is change.” We at Xebec are committed to evolving with this change in order to continue delivering quality investments to our investors through our “Build-to-Core” execution at the project level and “core plus” portfolio at Xebec Industrial Trust, LP.