This land is valuable for the evolving US economy. Right now
I'm a Dutch Springs Aqua Park and this land will be
transformed into warehouses. The US will need 1 billion square
feet of new industrial space by 2025 to keep up with demand.
That estimate doesn't account for all the warehouses that have
already hit the market in the last year.
The first warehouse I and five other people tried to stop it in
the township we we realized this as we couldn't stop it. And what
that did was just start a progression of one warehouse
after the other. We were the last property. One warehouse
will be in Bethlehem Township, the other one will be in lower
Nasser Township.
And investors are noticing.
The last 12 months have seen the most growth in our industry say
from a square footage, new requirement perspective than
ever in the history of the industry.
That expansion is shifting local economies where these commercial
industrial real estate markets are particularly red hot, like
here in the Lehigh Valley in Pennsylvania.
And it's all happened rather rapidly and that creates an
obvious backlash.
We can't have another warehouse on another piece of farmland or
open space. Our folks are very upset about the warehouses.
So we used to be quite welcome and the worm has definitely
turned especially in places like the Lehigh Valley people feel
like when's enough enough.
But warehouses support the online shopping boom and the
push for faster deliveries.
Consumer expectations our expectations are not going down
by any means. That's where the demand for warehouses is coming
from.
And the industry is effectively sold out through the end of next
year.
Even if you want space tomorrow there's a shortage of it.
What do all these warehouses mean for American consumers and
business people from Wall Street to Main Street. There are about
11,000 existing warehouses in North America equaling over 4.7
billion square feet as of 2020. During 2020, another nearly 190
million square feet of warehousing space was under
construction in North America. It's all about proximity to
consumers. For example, one of the biggest markets is the
southern New Jersey and eastern Pennsylvania region. Smack in
the middle of that market is the Lehigh Valley, which happens to
be where I live. Plus it ranked number one for the market with
the most warehouses under construction with 25 point 2
million square feet of buildings in the works in over 45% of
those are already leased.
I was born here in the Lehigh Valley. I've seen progress. My
name is Stuart Schooley, I am president of Dutch Springs, 72
years old, actually. Yeah. 72. Now I'm 73 now. October 22 was
my birthday. You have a tendency to forget these things as you
get older.
The Lehigh Valley is right next to Pennsylvania's I-78. A major
highway connecting big cities like New York to eastern
Pennsylvania that allows for one day access to millions of
people. In fact, there's more than 8 million people just
within 50 miles of the markets core. The region is centrally
located along the East Coast close to three major ports, the
Port of New York and New Jersey, the Port of Baltimore and the
Port of Philadelphia. Not to mention easy access to
railroads, 100 major interstate interchanges, and multiple
international airports. This isn't just happening in the
Lehigh Valley, it's also a broader US story like in Chicago
and Southern California.
12 of the last 14 buildings that we have built in Southern
California were 100% leased before they were finished.
That's how strong demand is.
Amid the warehouse boom, the once plentiful supply of land is
tightening up. That's pushing developers to get more creative
and find more unconventional spots like an aqua park and
diving center if they want to keep building here.
Dutch Springs has become surrounded by warehouses.
Dutch Springs is a recreation area. We started it for scuba
diving only. We put in an Aqua Park which is a water park on
the water.
The Aqua Park has been taken down for the winter season.
We also put in an aerial park which is a high ropes course and
wall climbing, zip line bouncer for other attractions for the
general public rather than just scuba divers.
Owners Stuart and Jane Schooley have been running the business
for more than 40 years. Dutch Springs sits on about 100 acres
of land and half of that 50 acres is the lake that
has become a scuba diving hotspot in the area
I you know I enjoy people coming here I enjoy I enjoyed watching
them have fun.
But soon this land will be home to two roughly 300,000 square foot warehouses
developed by Trammell Crow. The Schooley's saw an opportunity to
retire by selling the land.
When a friend down the street who sold his land when I heard
what he got for the for his acreage, I said, I went and
called them. And now I should be able to retire.
10 15 20 years ago, you went there because there were plenty
of farms. Now it's becoming harder, and we're on to the
sites like the one that we have under contract on Hanoverville
Road.
I guess, you know, I'm a greedy capitalist, but it gave us the
security that we needed here in our later years, because as a
biz, small business owner, you don't put money away, it goes
right back into the business all the time. So we our our
retirement was the land and it kept going up and up in value.
But since they're still under contract, neither party would
disclose the value of the deal. But it's safe to say it's a fair
amount. The continued warehouse development in the Lehigh Valley
has become a point of controversy.
As I say, tough bananas. I'm not doing anything that hasn't been
already done here.
There was a lot of outreach, a lot of people wanted to preserve
the the quarry and the diving opportunities that are there.
And so when we heard people were interested in this, we said
let's try and figure this out.
First responders who do water rescues come to Dutch Springs to
be trained on how to do that.
I believe there will be some type of diving operation here.
We'll work our project around it.
Right now there's at least 8.8 million square feet of
industrial space under construction and industrial rent
has increased 11.3% year over year. The total square footage
of the industrial space in the Lehigh Valley is over 132
million square feet.
Why the warehouses want to be here, it's the same reason that
the divers come here. We are centrally located between
Boston, New York, Philadelphia, Baltimore and Washington D.C.
And the Lehigh Valley's is growing population is attractive
to companies looking to reshore operations or shorten supply
chains in an affordable area in the heart of the Northeast. The
Lehigh Valley's GDP hit a record $43.3 billion just before the
pandemic, and over 16% of that economic activity was part of
its strong manufacturing sector. The area's home to Crayola, Mack
Trucks and Peeps maker, Just Born just to name a few.
We have to create an environment where good jobs can be created.
According to CBRE's research, the northeastern PA and New
Jersey markets warehouse the labor force of about 190,000 is
expected to grow by 13.4% over the next decade.
You know that's translating to $45,000 a year for somebody with
just a high school diploma. Workers right now are benefiting
greatly from what's happened in the Lehigh Valley economy.
In logistics real estate warehouses like this one are
much more than stagnant storage space.
Yeah, so what's logistics real estate? I think the number one
thing you should think of is constant motion, goods getting
from where they're produced to where they're consumed, they
need to make multiple stops on that journey.
A warehouse is an industrial big box facility. It's a
distribution center of at least 200,000 square feet. Basically,
it's a giant living, breathing mailbox. There are three
different areas that are driving the need for more warehousing
space: logistics and distribution, third party
logistics and then e-commerce. E-commerce is basically
conducted by a company online related is logistics and
distribution. Imagine you buy something online.
And once you place the order, how does it get to your
doorstep? It's that trucking company or a logistics and
distribution company like a UPS or FedEx that's picking up that
package from the e-commerce facility and then delivering it
to the last mile which is your doorstep.
We own and develop buildings and we leased them out to the
world's leading retailers. Our top 25 customers include Amazon,
XPO, FedEx and UPS a wide range of the world's leading
companies.
According to its latest earnings report, its net earnings per
diluted share was 97 cents for the quarter, compared with 40
cents for the third quarter of 2020. Its portfolio includes 612
million square feet of industrial real estate in the
US. In fact, Prologis is Amazon's biggest landlord.
Besides the national ones like Prologis, Link Logistics is
another big one they're a subsidiary of Blackstone. Then
you've got a lot of other players like Clarion Partner
Other major national players include Duke Realty.
, there are regional players as
Today about 165 million square feet of space in 19 markets
across the country the major distribution markets.
Warehouse vacancy rates are at their lowest levels ever, and
utilization of warehouses is at an all time high.
Close to 96% of all buildings in the US have been occupied right
now.
So 4% vacancy in the standing stock is, you know, lowest ever.
In turn, rents are at all time highs and pre leasing rates are
soaring, that's when companies lease the buildings before
they're even built.
The leasing volume is almost triple in some cases to what's
being built every year.
This is happening for a few reasons.
We've been having like a decade long of strong growth, and we
had one of the highest leasing volume numbers in 2019. And then
comes, you know, 2020, where we see an accelerated growth.
There's been massive economic stimulus that has really
contributed to consumers buying goods, not experiences. And that
has just driven a whole load of activity through the supply
chains.
E-commerce drives demand for warehousing, because it requires
three times the space of the traditional user.
Why does e-commerce require three times the space. So
there's a lot of requirements to say nothing the inventory
breadth and depth is required, right. Your average big box
store might have 25,000 products, SKU stock keeping
units SKUs. And your online stores are millions, there's
product variety, direct to consumer, reverse logistics, and
each is taking that all take all that extra space.
Warehousing demand is also driven by retailers securing
more storage space to mitigate the impact of future supply
chain shocks.
Historically supply chains were tuned for efficiency, not
resiliency, kind of just in time versus just in case. And so we
are just now starting, that's in the last 90 maybe 180 days,
seeing customers who are starting to come into the market
and lease space to satiate this just in case type of demand.
The need for more warehousing in the US aligned with consumer
expectations.
So as consumer expectations change, there has got to be that
impact on the backend of it, which is supply chain, your
tenants, you know produce, sourcing the goods and getting
it to that last mile.
Warehouse leasing is likely to increase further into 2021,
according to CBRE.
We'll definitely see more multi story warehouses in the US
because there is that need for online shopping. That's not
going away anytime soon.
Other trends in warehousing may continue as well like grocery
e-commerce, which requires cold storage facilities and those
facilities come at a higher price tag. The US may need
another 100 million square feet of cold storage facilities just
to keep up with consumer demand in this space. Then there's
robotics and automation, which is increasingly becoming part of
warehouse work.
And it's needed because the volume of activity just that's
happening inside a warehouse, it's increased tremendously. Now
packages are coming in at a much faster rate, they are getting
processed at a much faster rate, and they're getting shipped out
much faster than what they were before. So there is definitely
that need for labor.
This means our customers able to get even more value out of these
facilities. And in particular, those that are close to the end
consumer I think are going to become even more valuable as a
result of this trend.
But hiring more workers and building more warehousing
facilities won't simply fix the supply chain issues that the
economy faces.
This is gonna take a while, you know, I hate to be the bearer of
bad news, but this is gonna be a situation that I think is going
to take at least a year potentially longer to truly
rectify itself.
As for the Schooleys next chapter,
I'm an adventurer, so to speak. We're going to do some
traveling. I told my wife though, if she wants to get me a
present, she can get me a seat on SpaceX for three laps around
the Earth and I will be satisfied. Since I since at 72
I'm not the oldest anyway, they're you know, Shatner's
older and so I you know, I think I can do it.