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The industrial real estate industry is looking to enter a downcycle
According to Wired, $AMZN is looking to cut back on warehouse space as its projections of high online retail sales didn't materialize.
Many of the leases that Amazon made during the pandemic with warehouse providers are now looking to be cut. The recent retail sales report shows that consumers are paying more for items; not buying more items. Even if consumers might still be sitting on a higher pile of savings, inflation is eroding the real value of people's savings.
E-commerce fueled the surge in demand for warehouse space. As the industry endures a slowdown, demand for warehouse space will decline. Many of the pre-leases that e-commerce companies have signed with developers are looking to get cut in the process. Developers will continue to finish the construction of warehouses, only to find that their project will finish at a time when there's a huge glut in the supply of warehouses.
$PLD $STAG and other warehouse stocks will see their pricing power erode. As for the cold storage warehouse providers like $COLD, I do see them handling the supply glut better because demand for cold storage is still high.
Using Dow Theory, the declining demand for warehouse space correspond to a freight recession. Companies are cutting back on transportation services because they are ordering less inventory. $FDX $UPS $JBHT $XPO are other trucking and parcel delivery companies are going to be impacted negatively by the decline in e-commerce. UPS fell after their earnings because of that reason.
For now, I plan on holding $STAG because I enjoy the monthly dividends I receive from it. I'll be monitoring their earnings and reading the earnings transcripts to see how conditions in the warehouse REIT space are holding up.
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Like everything tied to retail and consumer demand, bad short term outlook for sure. I’m holding a small amount of $STAG and $PLD. Wouldn’t be surprised to see them drift lower but I like them long term so I don’t see the point in selling to buy back a little lower. I think demand will come back before it gets really painful. I do see some positives here too. Amazon will stop building their own warehouses now and maybe even sell some as leasing will provide more flexibility in dealing with inventory cycles. The second positive is that as other e-comm businesses scale they will fill in the spaces left by Amazon. Obviously this is dependent on demand coming back but if you think e-comm is still a growing market, warehouses will be integral to that long term, and this is just a temporary bump in the road. Now though the retail and e-comm companies will be more hesitant to try to build their own warehouses as it’s added risk to manage during down cycles. The warehouse as a real estate sector is now a fortified sector for real estate companies.
