Investing in warehousing is on the rise as the need for more space to support supply chain operations increases.
In only a few industries do rivals do ongoing business with each other. One involves industrial warehouse landlords which seem to swap assets continually. On May 29, Philadelphia-headquartered EQT Exeter, the global property investment management unit of Stockholm–based EQT AB, the third largest private equity firm in the world, said it is acquiring 20 bulk, light industrial and last mile warehouses covering five million square feet throughout Minneapolis-St. Paul from Prologis. The deal for what Prologis terms “the Assemblage,” calls for EQT Exeter to buy an additional four industrial properties from the seller when the deal closes.
EQT Exeter, which is also a global industrial property investor like Prologis, is aggressively acquiring US industrial warehouse properties and portfolios. In March, it bought a 450,000 square foot industrial warehouse in Georgetown, Texas, for $60.9 million. The 106-door building, completed in 2023, is fully occupied by GAF Energy LLC, a solar roofing producer, on a long-term lease. A month later, EQT Exeter bought a new, vacant 641,906 square foot industrial logistics building in West Phoenix for $60.1 million. The 40-acre property is reasonably close to the Southern California ports.
Right about the time the COVID pandemic slammed the US, EQT Exeter sold a 328 portfolio of supply chain and e-commerce warehouses covering 70.5 million square feet for $6.8 billion. The multi-state portfolio, assembled by EQT Exeter, through more than 100 separate property acquisitions over three years, was said at the time to be among the largest industrial real estate transactions in US history.
All Real Estate Local
In an interview with the American Journal of Transportation (AJOT), Henry Steinberg, partner and president of EQT Exeter North America, who is also a co-portfolio manager, says his company differs from its large competitors because it doesn’t have a team of analysts in a central office doing due diligence from afar.
“All real estate is local, and we have development leasing and investment professionals on the ground in 25 markets across the country,” he says. “They are evaluating and analyzing the bricks and sticks of supply chain buildings on the spot. We’re focused on the quality of the asset, how it fits into the tenant’s proximity needs and the transportation costs and how to get the product from the warehouse to the customer. Then they analyze the cost and availability of labor in that market. The last thing they evaluate is the cost of the real estate.”
EQT Exeter is also a developer and has been active in “big box markets,” Steinberg says, like, for example, Denton, Texas, where it built a 600,000 square-foot warehouse for a national housewares retailer. Also in Denton, the company developed a 1.2 million square foot “supply chain” building that it leased to a large apparel company. EGT Exeter also buys existing industrial warehouses in Denton. It decides whether to buy or build depending on local economic factors including market demand, replacement costs among others, the company says.
EGT Exeter does not cluster its assets in the Sun Belt. “We look, first and foremost, at the quality of the real estate and how it fits into a supply chain,” says Steinberg. “Whether it is big box, regional warehouse, last mile or e-commerce. We evaluate the total transportation costs to get product from its source into the warehouse or direct to their customer. Our perspective is if you are looking for the cheapest piece of real estate, you might get what you pay for.”
Buyer or Seller
EQT Exeter makes its buy, sell or build decisions in a market based on the local economic conditions, location and replacement costs, not on some company-wide hard-and-fast asset management formula established at its headquarters. Plus, it also depends on how the property would fit into the company’s appropriate investment fund. “At the moment,” says Steinberg, “to get the risk adjusted returns for our investors, we are doing more buying than building. And we’re buying more high quality assets with high quality tenants on long-term leases that will be more valuable pieces of real estate in the long run.”
Still, EQT Exeter is deploying investment capital on supply chain/logistics properties in five “US regions near major population centers or at least a “one day truck drive away” from them. They are the Northeast, Southeast, Midwest, Midsouth (Steinberg calls it “Texas”) and the West Coast. “And where the e-commerce hubs are today-Memphis for FedEx, Louisville for UPS and Cincinnati for Amazon, he adds.
The company also invests in smaller, “last mile” warehouses relatively close to densely populated East Coast cities and states such as Washington DC, the suburbs of Philadelphia, the Meadowlands area in New Jersey.
Is EQT Exeter focusing on properties designed for high volume e-commerce traffic? Steinberg opines that the “modern industrial warehouse buildings” can accommodate e-commerce and traditional warehouse shipments. “They have taller clear heights, more dock doors, proper truck queuing and trailer parking, flat floors. These physical features and more are all very important to the main objective which is how fast they can turn over their inventory.”
The big problem for industrial property investors and developers, he says, is that the e-commerce “warehouse boom” of the last 15 years has led to a “tremendous amount of pushback” by local municipalities, townships, school districts “on warehouse development.” It has become more restrictive and more expensive, he adds, contending that municipals generally are “not zoning anything that is not zoned industrial today.”
Plus, in pushing warehouse development further and further away from population areas, “the harder it is to find labor which is now a serious cost issue and a problem.” Steinberg argues. His bottom line: automation is and will continue to play a greater role in warehouse operations.
Robotics and Warehousing
What do major materials handling leaders think of the future of industrial warehousing? Jeremy Rock, regional vice president, South Region of Equipment Depot, Inc., an 85-year-old materials handling company with 50 warehouse locations nationwide, in an exclusive interview with the American Journal of Transportation, puts it bluntly. “You want to maximize the real estate, maximize the storage. Getting the most stuff in your warehouse with the least amount of space. Instead of building out, we’re building up. We’re seeing taller warehouses built with 40 feet high clearances. That’s where companies see ROI.”
Rock contends the “surge in e-commerce has led to lasting shortages of warehouse space so on-demand warehousing is gaining prominence.” He says companies want “flexible storage solutions” so they can “scale up or down based on demand.” In short, it is storage capacity that adapts to changing needs efficiently.
Finding and retaining labor today is a challenge in every industry, particularly logistics, so Rock reports warehouse-centric companies such as Equipment Depot are embracing and adopting automation technologies that enhance efficiency, speed and safety.
Among them: collaborative robots or “co-bots” that work alongside human workers and assist with receiving, storing, picking, packing and shipping goods. “They automate repetitive processes, allowing human workers to focus on more strategic activities,” he says. Rock notes that modern robotics are shrinking in size today and can work in smaller warehouses and distribution centers, optimizing floor space.
Today’s robots have greater capabilities. “Vision enabled robots can pick items from bins or conveyors using advanced algorithms and artificial intelligence which speed up order fulfillment and reduces manual labor,” he adds.
Technology is sharply improving warehouse efficiency and accuracy in materials handling. Rock claims the Internet of Things (IoT) is “revolutionizing” warehouse management. These are sensors and connected devices that provide real time data on inventory, equipment and environmental conditions, a “visibility” that allows for better decision making, predictive maintenance and optimized workflows, he explains.
Still, what were advanced design concepts until just recently are being incorporated quickly these days, says Rock. Warehouses are being built with eco-friendly practices or “green design” that include energy efficient lighting, solar panels, rainwater harvesting and recycling. “It not only benefits the environment but also reduces operating costs in the longest run,” he maintains.
But all eyes are on advanced technologies such as AI and machine learning, according to Rock, which will analyze data to determine the “most efficient arrangement of storage areas, picking zones and transportation routes.”
Warehouse operations have already been adopting new swift procedures. He cites conveyor systems equipped with tracking mechanisms allowing robots to pick complex objects at high speed, a recent innovation further enhancing accuracy and efficiency in materials handling.
E-Commerce and the Warehouse
Asked if the strong growth in e-commerce has changed the structure of warehousers today and triggered new developments in handling of materials, Rock says a resounding “Yes. Absolutely. As more and more retail stores make their products online, you need a place to store the goods.”
Equipment Depot’s business has historically been to sell and/or rent new or used heavy-materials handling equipment such as Cat lift trucks, Mitsubishi forklift trucks and Jungheinrich among others to facilitate warehouse logistics. The company EQSOLUTIONS division specializes in warehouse and automation in engineer systems solutions for manufacturing, warehousing and distribution facilities, Rock explains.
To streamline the e-commerce supply chain, keep up with “continuous order taking” and “satisfy” customer demand for quick deliver. Rock says more warehouses will adopt additional staff shifts that will handle more individual orders than bulk orders. But the technology is there to positively impact individual order picking from high places and shipping. Other innovations: electric pallet jacks, agile wave pickers, “reach” trucks, very narrow aisle trucks, adding precision to vertical storage.
Sums up Equipment Depot’s Jeremy Rock: “As the e-commerce landscape continues to evolve, warehouses will keep adapting to meet consumer demand and optimize operations.” Plus, the company will continue to expand to capture that growth. Located in six of the top 10 forklift markets in the US, it recently moved into Seattle and the Inland Empire region in Los Angeles.
