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Real Estate Investing

Why is Warehouse Rental the Future of Real Estate?

New real estate trends had been emerging with the COVID-19 pandemic, leaving some sectors vulnerable in the near future.

Myself, Ofir Eyal Bar, would like to discuss another interesting real estate topic. Considering it got a lot of media attention during the past several months, and it’s warehouse rentals will be the focus today, especially since I have stakes in the industry across several Western European countries, I think I might shed some light on the matter.

Alt-text: warehouse industry

Source: https://www.axelent.com/axel/build-a-safe-warehouse/

COVID-19 changing the business spectrum

Although it is not as frightening as it was at the beginning of the year, the coronavirus continues to spread around the world. There are more than 27.5 million cases globally and 250k+ new cases per day, which makes people and businesses adopt a conservative approach. Customer behavior had changed and imposing restrictions on some sectors that could contribute to the spread of the pandemic had affected some businesses and favored others.

Tech companies embracing work from home

Traditional office rentals are enduring a lot of pain now that most of the tech companies are embracing the work from home trend. A report from the Wall Street Journal suggests Europe lease deals are suggesting the office industry will face great challenges in the post-COVID world.

Tech companies had been favored by the pandemic, considering they can have a flexible approach when it comes to how employees conduct their daily operations. As a result, companies like Twitter Inc. and Facebook Inc. had taken measures since several months ago. Microsoft Inc. surprised when it announced the closure of all its physical stores until mid-2021. Across Europe, the situation is similar since office space leasing demand had tumbled 21% during the first quarter of the year.

E-commerce booming

As a significant share of the population is reluctant to get back to the older habits, afraid of the coronavirus, and with prevention measure still in place (social distancing, wearing a mask in public, etc.), e-commerce had been booming, acting as a major tailwind for the warehouses’ rental sector. Online retailers need to stock a wider variety of products faced with increased demand.

Since this trend is very likely to continue, we should expect to see warehouses built closer to large urban and suburban areas, considering the main goal of online retailers is to shorten the delivery time. At some point, the pandemic will be a done deal, but in the meantime, companies that had been the main beneficiaries will invest some of the revenue to keep customers even after we “will get back to normal”.

Social distancing measures – the new normal?

But that does not seem to be taking place in the next several months. There have been encouraging signs related to a vaccine, but even if some will be approved by the end of the year, the probability of having it delivered for the wider public before mid-2021 is reduced, according to many experts.

We must keep in mind that a lot of corners had been cut to come up with a cure so fast. The risks of vaccines having limited or no effectiveness thus increase and this is one of the main concerns moving forward. But that will also mean social distancing measures will continue to be in the play ‘till 2021, favoring the e-commerce sector and thus the warehouse industry.

The virus might not be as deadly as assumed months ago, but it is definitely contributing to a major reshuffle of economic activity. I, Ofir Bar, am pleased to have talked about the positive implications on the warehouses’ rental industry. What do you think will happen to this sector in the near future?