With the Rise of Online Retail, Rent Prices for Warehouses Start Rising as Well

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E-commerce is slowly but surely rising and is taking an ever increasing share of retail. With this growth, many new dynamics and second order effects will come to the foreground. Here is a rather obvious example of this.
Reuters via Business of Fashion:

Real estate investment trusts (REITs) that own the distribution centres required to fill all those Amazon Prime boxes are a growing favourite on Wall Street after two years of underperformance compared with the broad real estate market.

In large part, the move comes about because of changes in the supply chains of online retail giants like Amazon.com Inc over the last few years as they focus on fast, two-day shipping. (…)

That has allowed companies such as Prologis Inc — which counts Amazon among its largest customers — to raise rents a record 20.1 percent in the first three months of the year. Even with the rent increases seen this year, warehouse occupancy rates are at their highest since 2000, making rent spikes across the industry likely for newer, modern warehouses near major cities, according to Green Street.

E-commerce has different needs when it comes to warehouses and logistics than traditional retail did. (Ask Walmart) The rise in rent prices, and subsequently the rise in value for those renting the space, is just one consequence of this.

It begs the question on how exactly Amazon and other big online retailers will operate going forward as this is going to spiral upwards. Especially Amazon, which is essentially building out the bandwidth for a large part of the future online retail, seems to be poised to need more (a lot more) real estate going forward. So, better start buying instead of renting? But then again, the selling prices will go up as well. (Besides this, buying real estate would also obviously mean far higher capital expenditure upfront whilst at the same time a slower roll out/growth.) Who said becoming the king maker of tomorrow’s retail would come cheap?

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