When you hear that land on which to build a warehouse is going for $1.75 million per acre in Northern New Jersey (up 17 % year over year) and you hear famed real estate mogul Sam Zell say “If someone needs a bell ringing to figure out that the real-estate market is pretty frothy right now, I’m in the business of selling hearing aids”, you learn two things:
- If you are going to get space, it will be a lot more expensive
- The trend is to put supply closer to demand
On this last point, we all know that cost efficiency drives an “optimal" number of warehouses for any given service level but the demand for higher service levels are growing. My belief is that there are other factors at work here: eliminating delivery risk. Large CPG companies, suffering from retailers levying, punishing penalties for late shipments, and a “take it or leave it” carrier market, find security having warehouses near their customers.
West Texas Intermediate is over $60 per barrel!