In the 10 years before COVID-10, national and DFW logistics real estate had already seen 10 years of positive absorption. That’s accelerated in 2020, as companies like Hillwood race to meet the demand for more.
Hillwood VP Reid Goetz looks at how philosophies have changed, how inventories are building up domestically, and how his company is moving to meet demand, with millions of new square feet in modern logistic facilities within AllianceTexas.
Goetz, one of the commercial real estate experts in our feature “21 Experts on 2021,” shares his take on what’s next in our Q&A.
What opportunities and challenges do you see in e-commerce as it relates to CRE for the coming year?
I think it’s fair to say that 2020 has brought a unique set of challenges to everyone, on multiple levels. From a purely CRE viewpoint, the logistics real estate sector, specifically the e-commerce segment of the space, has performed extremely well since the pandemic started.
For perspective, both the national and DFW logistics real estate sectors experienced almost 10 years of positive absorption prior to the pandemic. This was driven by a broad-based retooling of the global supply chain in order to meet the demands of the e-commerce economy and consumer. That trend has continued and accelerated through the first half of 2020. We’ve seen an explosion in consumer-driven online sales during that same period.
In addition, our customers have described a growing philosophy change in inventory management. The “just-in-time” model, based on lean inventory warehousing relying upon highly efficient transportation channels, is proving to be highly susceptible to unexpected changes and risks in global supply chains. This change could lead to building up inventories domestically, which can supply chain risk for companies by placing product closer to the populations they serve and drive even more demand in the logistics real estate sector for the foreseeable future.
What changes in e-commerce brought on by the pandemic do you expect to be long term?
The speed at which consumers accelerated the adoption of online purchasing during the pandemic has been staggering. During the pandemic, U.S. e-commerce sales grew more than 30 percent (from Q1 to Q2 2020), compared to a 2.4 percent rate between Q4 2019 and Q1 2020. E-commerce now accounts for 16.1 percent of all U.S. sales, up from 11.8 percent in the first quarter of 2020.
The consumer is moving much faster than the infrastructure (i.e., modern logistics real estate). While we don’t expect that level of quarterly growth to continue, we do expect this shift to last for the long term and continue to drive demand for modern logistics facilities.
In addition, Hillwood is at the forefront of a rapid change in the mobility and transportation sectors. We recently established the AllianceTexas Mobility Innovation Zone, which will help advance long-lasting shifts in mobility—from automation on roadways to drone delivery—all within AllianceTexas.
How are you handling the pandemic changes and economic uncertainty with your e-commerce tenants?
We’re constantly working and communicating with our customers in an effort to understand and anticipate the needs of their businesses. It’s become even more evident that customers need to move faster than before. In AllianceTexas, we’re focused on providing speed and flexibility to both new and existing customers. To accommodate customers with the fastest and most immediate timelines, we’ve just completed over 2.7 million square feet in five spec buildings within AllianceTexas, ranging from 1 million square feet to 225,000.
We’re focused, as we have been for the past 30 years, on our build-to-suit strategy of providing speed-to-market, development-ready sites throughout the remaining 6,000 acres in AllianceTexas.
What current and upcoming projects related to e-commerce are you excited about?
We’re excited about our recently completed Alliance Westport 11 (1 million SF) and Alliance Center North 7 (810,000 SF) spec buildings within AllianceTexas. These Class- A, modern logistics facilities are located within the center of the AllianceTexas logistics amenity platform and are designed to accommodate all users, specifically those in the e-commerce space. With proximity to I-35W, the Alliance BNSF Intermodal Facility, multiple FedEx Ground and UPS Ground sort hubs, and the depth of a daily workforce of over 60,000 in AllianceTexas, these facilities are positioned to best accommodate companies seeking solutions that can support their already-changing businesses—today as well as decades into the future.
The interview has been edited for brevity and clarity. A version of this story first published in the Fall 2020 edition of the Dallas-Fort Worth Real Estate Review.
Sandra Engelland contributed to this report.
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