PART I: DEMOGRAPHIC TRENDS
Xebec is 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. There are many drivers of demand in the I&L sector, but we at Xebec are focused on a few very tangible and identifiable drivers that help guide our investment decisions: demographic trends, technology and supply chain infrastructure. In the next several Blogs we will explore each of these three drivers and why we believe they positively affect demand in the I&L sector.
Demographics are a critical factor behind the growth or contraction of any sector of real estate. The size of a generation, consumer habits and household formation trends play into demand in all five sectors of commercial real estate (which are often referred to as the “five food groups”): office, industrial, retail, multifamily and hospitality. We cannot control or drive demographics, but we can study their outcomes and strategize accordingly.
Each generation in the U.S. has had different impacts on economic trends and urban growth patterns. The Millennial Generation is largely responsible for the tidal shift in eCommerce growth based on consumption patterns and household formation, which are the most significant factors affecting the retail logistics supply chain. Born between 1981 and 1996, this approximately 74 million strong generation is currently between 22 to 37 years old, smack dab in the middle of their household formations (substantially later in the life cycle than prior generations) likely resulting in years of continued consumption.
The Millennial Generation is also the first to grow up with technology in their hands. There has been a lot written about this generation’s preferences in housing (urban vs. suburban, rental vs. ownership), but what is not debated is the Millennial’s overwhelming preference to shop online. This preference has helped create one of the most powerful corporations on Earth, Amazon, which while being a behemoth is only one of the many participants in the expanding eCommerce retail supply chain.
The Millennials, and the generations to come, in our opinion will never return to the “brick and mortar” model of shopping, causing many retail giants to either close their doors, or scramble to catch up with their eCommerce strategy. According to CBRE it is estimated that for every foot of I&L distribution center space required to support the brick and mortar retail model, approximately 3 feet of fulfillment space is required for eCommerce delivery. With the current trend of eCommerce sales in the U.S. compounding at approximately 15% year-over-year as also reported by CBRE, we believe the I&L sector is in the early stages of a strong expansion phase. Xebec remains focused on this demographics driver as we continue our “Build to Core” execution in order to deliver quality investments to our investors at the project level and core plus portfolio at Xebec Industrial Trust, LP.