Jones Lang LaSalle acts as strategic advisor for Goodman Group’s entry into U.S. market
North American-based logistics and industrial real estate space dedicated for warehousing and distribution continues to remain an attractive option for foreign investors, even during this ongoing period of economic uncertainty.
And global real estate firm Jones Lang LaSalle (JLL) is taking advantage of that situation. This week, JLL said it acted as a strategic advisor on a planned $1.5 billion investment into North American logistics and real estate development by Australia-based developer Goodman Group through an exclusive agreement with Irvine, Calif.-based Birtcher Development. The joint entity will work in the U.S. as Goodman-Bircher.
Goodman-Bircher will focus on a deployment-led investment strategy that will first concentrate on developing facilities in key logistics hubs and also subsequently invest in stabilized properties, said JLL. It will first focus on Los Angeles, San Francisco, and Seattle, New York, New Jersey, and Central Pennsylvania.
“Our focus on distribution hubs such as Southern California and Central Pennsylvania is in a large part driven by the demand in this sector,” said Shannon Hondl, Chief Development Officer for Goodman Birtcher, in a statement. “Jones Lang LaSalle’s expertise in this industry vertical coupled with their ability to underwrite and execute complex and strategic projects has helped put us in a market-leading position as we develop the next generation of distribution centers.”
JLL officials explained that the influx of foreign capital to the U.S. industrial market is one of the key trends driving the resurgence of the sector, adding that low interest rates and demand for prime, well-located logistics property are also helping to bring attention to U.S.-based warehouses and distribution centers as well. Some other factors cited by JLL, include: solid U.S. manufacturing growth and demand for “big box” retail space by e-commerce players.
In an interview, Rich Thompson, managing director of JLL’s Supply Chain and Logistics Solutions consulting practice, explained that when thinking about investment class real estate—office products, retail products, and industrial products—the latter properties are typically less capital-intensive and historically do not experience the same types of highs and lows.
“Warehouses and distribution centers tend to be the most appealing,” he said. “From that standpoint, industrial real estate has been a pretty attractive investment. What we are seeing is that there is not a real sufficient supply of high-quality, Class A larger product type in terms of distribution facilities in major markets. There is now a beginning of speculative development coming back into the market, so that is a positive thing. It is not near anywhere where it was—in terms of investments—at its peak, but values and activity have improved dramatically.”
And with warehouses and distribution centers serving as vital links in the supply chain, more multi-national and multi-billion companies with a global presence are looking for global partners that they can work with regardless of geography.
This is where the Goodman Group’s investment truly comes into focus, according to Thompson.
“Goodman is one of the largest players in the world from an industrial real estate standpoint,” he said. “But nobody has ever heard of them in the U.S., because they are not here. When you think about big property owners in the U.S. from an industrial and supply chain standpoint, you likely would not know of Goodman. But Goodman is like Prologs for the rest of the world and is big in Europe, Asia-Pacific, and Australia. From its standpoint, not being in the U.S. was a big hole in the portfolio. If you are working with big, global companies on supply chain efforts and cannot satisfy the U.S. market, it creates gaps and that was obvious to them.”
In conjunction with this announcement, JLL outlined five major themes that are leading the charge for the industrial real estate resurgence, which include:
1-Strong supply and demand characteristics, with industrial real estate currently benefitting from stable, healthy demand and an increasingly constrained supply of high quality space, coupled with vacancy levels declining from a 9.1 percent peak in 2010 to 9.1 percent, which was last reached in 2009 and now heading toward pre-recession levels of 7.5 percent;
2-Foreign capital seizing the moment, with the pace of annual industrial sales volume going from a recession-low of $10.9 billion in 2009 to $35.1 billion in 2011, with 2012 expected to be between $40-to-$45 billion;
3-Global supply chain trends such as increasing labor costs in China and fluctuating fuel costs, which have forced shippers to re-evaluate their supply chain operations. Thompson explained that shippers want to be close to customers as it benefits speed-to-market and reduces inventory-carrying and freight costs, among other factors;
4-The explosion of e-commerce and the U.S. and globally. JLL said one-third of the demand for warehouse and distribution space is geared towards e-tailers (multi-channel retailers), explaining that retailers are finding it more cost-effective to boost online operations instead of opening traditional stores that utilize a different distribution model. What’s more, JLL noted e-tailers are evolving their regional distribution networks to include e-commerce distribution centers, with demand for them on the rise since 2009; and
5-Solid U.S. connectivity and infrastructure in the form of U.S.-based ports, highways, airports, and rail networks, coupled with close proximity to the Panama Canal, which is being expanded to accommodate larger vessels and more freight. JLL noted that demand for industrial space around inland and coastal ports is expected to increase as a result of this expansion, which is expected to be completed in 2014.