Global Supply Chain Transformation Impact on Commercial RE?

Question

New here at Bigger Pockets. Lifelong interest in land use and development. Georgia is my 14th residential state in my 58 years.

What impact is the change, globally, in supply chain services, on commercial + industrial here in the States? Listen to Bloomberg any day now and the journalism drumbeat is constant that companies are shortening supply chains away from Asia (China) and bringing them closer to the US Mainland. Thoughts?

My wife's dad manages 230+ agents for a brokerage in NE FL and he flatly says, "buy dirt".

Happy new year. JJK

Account Closed · Answer

In the United States, this trend is likely to lead to an increase in demand for industrial real estate, as companies look to set up or expand their domestic manufacturing and warehousing operations. This could be particularly true for industries that are considered essential or critical, such as pharmaceuticals, medical supplies, and food production. Sunbelt and Southeast states are likely to be the winners.

Henry Clark · Answer

@Jeffrey Kingman

Looks like you're in Atlanta.

Get on Loopnet and search Comml or industrial and look for Value Creation.  Like I stated above, I would invest around Global Supply Chain for starters.  Plus, I think there will be minimal impact in the US.  Go for local Value Add.  I always look at oldest listings first.  Never pay what they ask, or since land, ask for owner financing.  Say 40% of price with 5 year balloon at 0% interest, if they push for their price. You should have these sold in the first 2 years before the balloon comes due.

O S Fulton Parkway, 2.87 acres, zoned comml, $114,000 on major road, next to Walmart distribution center.  I see either an RV/Boat parking spot or a small Semi parking spot.  Or make it a distribution hub for Chips, Tortillas, Snap on tools, Floral distribution, etc.

Fairburn and Welcome All road, 6.43 acres for $308,000 zoned residential.  Develop and sell lots.  Or rezone if needed and develop a shovel ready Assited Living plot.

Camp creek at Washington road, 3.31 acres for $1,000,000.  Billboard $26,000/year through 2029.  Cap rate of 7% = $371,000 value on just the sign lease.  Near airport.  Storage or Semi parking.

Jeffrey Kingman · Answer

@Henry Clark thank you and everyone else on the thread.

As a heads up, not commercial, residential areas adjacent and near-adjacent to Microsoft's new 90-acre ATL campus seem to be in the same situation the Old 4th Neighborhood was 15 years ago before Ponce City Market came online. That's my "tip" for y'all sharing your knowledges. Thanks.

Ronald Rohde · Answer

Near shoring is already happening in Mexico. New N-S rail service through TX and AZ/CA are going to be huge

Colleen F. · Answer

@Jeffrey Kingman on the ground level labor cost is going to limit the movement from offshore warehousing. These are pretty low paying jobs and it still costs more in the US to staff warehouses and make product.   You can automate some but cheaper labor areas will see more benefits of new warehouses for now, as you get more automation you will see more in country warehousing.  Also you have to have the truckers to move this freight. That is going to be an issue.  Gig worker laws have greatly impacted independent truckers in port states so that may up the costs of imports and make it more attractive to truck from certain inland locations. Also you need to be close to a decent number of workers, so midwest and south, close to cities, freight train routes.

The question will be is this a permanent change or is it going to be like the auto industry boom and bust.

Henry Clark · Answer

@Jeffrey Kingman

I would break your post down into two topic areas.  1.  Would agree it's great to invest in land but would not invest in just "dirt"., 2.  Supply chain impacts.

1.  Examples of land investment, this is a broad painting:

A.  Buy land and hold.  -  Depending on property taxes, interest rates, and Realtor fees if any, you would be better off investing elsewhere.

B.  Buy land and subdivide - Just subdividing into lots you have lower input and depending on your purchase price should double your investment.  This is just selling lots and not spec buildings and a lot of infrastructure.

C.  Buy land and build spec- This is subdividing possibly and installing infrastructure and building spec buildings.  You have more at risk.  Your property should have value add, beyond just the buildings.  Example: Location to access roads, customers, rail, etc.

D.  Buy land and build purpose-built facilities. -  This is your money deal.  Probably looking at a factor of 3 times cost on value add.

2.  Supply Chain impact:

A.  China to the US.-  This is both correct for Value Add to a degree and incorrect for non value add or low cost.  History tends to always repeat itself and especially for the US.

-   Low Cost products will never come back to the US.  Yellow Rubber Duckies and even Washer/Dryers.  History- low cost wages US/Japan/Korea/China/next up is India and Malaysia.  Our standard of living and thus our worker wages are too high for low-cost products.  These will start to move away from China, because they are using up their available labor force (Watch Peter Zeihan youtubes) and their wages have risen about 3-fold in the last 20 years and they are pricing themselves out of the market.  The only reason our manufacturing hasn't left them to date, is because we have too much Concrete infrastructure there.  Has nothing to do with Politics.  You might ask why I didn't list Mexico.  They are using up their population also and they aren't both big enough and cheap enough to take over the Chinese production.  Our best bets strategically would be to use up labor forces in Central and South America, but those governments aren't strong enough and our Political Will says to stay away from "Colonializing" the Americas again, to the tune of Yankee go Home.

-  Value Add products, some will come back to the US.  But not because "WE" are smart, just because we got our hands slapped.  Our government system is not built to be pro-active.  What Super Power would build both their defense and economy around key products supplied or governed by a competitor country.  Thats us, the US.  You will have to see where "They" build, this type of investment and then go build there.  I wouldn't be going around the countryside buying land, hoping the next Amazon distribution center, Tesla plant, etc are going to be build near it in the future.

My point specifically to your question, is I would not worry about the World Supply Chain, with regards to investing in US land for development.

I would pick trends closer to home.  Not that I agree with any of these trends, but how do you make money off them from a Land Development standpoint.  Water shortages in the west, Illegal immigrants, Baby Boomers aging to Assisted Living, Green global warming, Jail populations, etc.  Forget your position on any of these, how do you make money off these trends or topics from a Land Development standpoint.  Take a topic and exploit it.

Caleb Brown · Answer

Here in Kansas City(Midwest) we have seen a ton of Industrial and Warehouses being built. It has increased jobs and prices.

Ronald Rohde · Answer

Yep, its an effect. But it will take 10 years before we see any specific deals (unless you're deploying $500million). We're buying industrial infill in DFW. Needs to cash flow to get us to 10 years, but we're happy with 12% CoC until then.

Michael Dumler · Answer

@Jeffrey Kingman, you're wife's dad is on the right track and in fact, we're starting to see this now in Georgia with Hyundai's new construction EV power plant link. A 926 million dollar project that's projected to bring 1,500 jobs to Bryan County. Any well-versed multifamily developer is most likely buying up land in the respective areas for commercial use. I'm not positive, however, it seems like once Tesla's Gigafactory in Texas was up and running, many other car manufacturers looked into the same industrial build implementation. Needless to say, the EV battery product is in high demand.

Mike Dymski · Answer

Between tariffs, nationalism/isolationism, anti-China sentiment, anti-immigration sentiment, record low unemployment, and onshoring, it means that prices for labor and materials are going to be much higher...they already are.

You mentioned FL.  The West Valley and Loop 303 in Phoenix has become a distribution hub on the west coast.  The Inland Empire and southern California in general has no space left and an overall high cost of business (land, labor, regulation).

Global Supply Chain Transformation > Impact on Commercial RE?

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