Commercial real estate development activity is picking up in a few different areas, but industrial properties are in a class of their own. Developers simply cannot build enough warehouses and distribution centers to satisfy demand, as Millionacres editor Deidre Woollard and senior analyst Matt Frankel, CFP, discuss in this Fool Live video clip, recorded on Sept. 28.
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Deidre Woollard: First of all, I want to share this, which is this is building data from NAR. It's via CoStar (CSGP 1.43%). You see the trends, what's being built, multifamily, offices starting to fall, industrial is just crazy, and retail is also down as well.
Matt Frankel: Well, industrial is e-commerce.
Woollard: Yes, exactly.
Frankel: At this point, I feel like we should call industrial real estate e-commerce real estate.
Frankel: Because that's really what is correlated to.
Woollard: Well, I think that's an interesting thing because I've been talking to different people about that. Because there's industrial, which is the larger umbrella term, but then you've got manufacturing, you've got logistics, and it's really logistics that's moving. I feel like when we talk about industrial, we are talking about e-commerce, logistics, mobile commerce, all of that, rather than just what we used to think up as industrial.
Frankel: You got to figure every time they build a new property for Amazon (AMZN 0.83%), it's adding five million square feet to the total. I don't know if you've seen one of those buildings, they're the size of seven football fields.
Woollard: They're huge. My mother lives near Port St. Lucie, Florida, and they're going leaps and bounds there. Amazon is going to build, I think it's 100 new industrial facilities. They're trying to get them done before the holidays. Part of that is just the supply chain thing is just messing everyone up. I don't know the latest total of how many ships there are up the port of Long Beach, but it was over 50 for a while.
Nobody can find their shipping container, and so the shipping containers are suddenly very, very valuable because they're all sitting on ships and they can't be unloaded, so they can't be reused. Part of the ways that companies are trying to solve this industrial problem is that they want to have more places to have stuff near them just that they don't have to be waiting on something to arrive from another country and sit there on a port for months.
Frankel: If you look at the other three categories from the chart, I can make a solid case that all of them had a lot of an overbuilding going on before the pandemic.
Woollard: Good point. Yeah.
Frankel: That's not the case in industrial. Look at where the industrial bars were in 2019, 2020, they were lower than office and multi-family in terms of how much percentage you are adding to this total square footage. Office was definitely being a little bit overbuilt, which is why you were starting to see office head toward before the pandemic.
Everyone likes to remind me how Empire State (ESRT -1.40%) was one of our worst performing stocks before COVID hit. There was a reason for that, it's because the office market, especially in cities, was facing these oversupply headwinds a little bit before the pandemic.