Third Party Logistics to Take Center Stage as Amazon Pulls Back Industrial Footprint

Third party logistics company List Logistics has announced it would lease more than 850,000 square feet in the massive Garden State Logistics Center in Mount Olive, New Jersey, a space formerly occupied by Toys R Us. The addition of the space to List’s portfolio means the industrial giant will operate more than 2 million square feet of distribution and warehouse space across the US, much of it near the ports of Long Beach and New York/New Jersey.

According to one analysis, we can expect to see more such deals as Amazon starts to scale back its presence in the industrial market.

Amazon is reportedly pulling back its industrial presence, causing angst, reconsideration and reshuffling in the warehouse space. In late May, Bloomberg reported that the recent slowdown in e-commerce sales back to pre-COVID levels left the company with a glut of industrial space, including warehouses in New York, New Jersey, Southern California, and Atlanta. Anonymous sources told Bloomberg at the time that the surfeit of space “could far exceed 10 million square feet,” with one source telling the outlet that it could be triple that. 

As Amazon pulls back, it’s likely that third-party logistics firms like List will move to the forefront. In a recent alert, Mizuho Americas researchers called 3PLs “collectively a key driver of demand for warehouse space, and as important as Amazon.” The alert also noted that 3PLs also grew their warehouse footprints “fairly steadily” during the pandemic, especially as compared to Amazon.

“YTD demand from 3PLs remains strong and our channel checks suggest this trend could continue near-term—a positive catalyst,” the Mizuho Americas note states.

Fundamentals Remain Strong 

Despite Amazon’s reconfiguring of its industrial profile, fundamentals for the industrial sector remained strong in the first quarter, according to Colliers, with developers remaining optimistic as demand for high-quality space persists. Thirty-three markets posted occupancy gains greater than one million square feet during the first quarter, including Chicago, Phoenix, Greater Los Angeles, Houston and Kansas City. Markets showing the most activity (absorption as a percent of inventory) include emerging markets such as Reno/Sparks, Savannah, Austin, Las Vegas and Salt Lake City. Growth in those cities were primarily driven by demand for logistics and distribution space from e-commerce occupiers, according to Colliers research.

“The outlook throughout 2022 remains positive as bulk warehouse/distribution space remains in high demand by e-commerce retailers and manufacturers alike,” the report notes. “Despite lingering economic concerns surrounding inflation and rising interest rates, the need for industrial product is not expected to wane. Tightening markets and an abundance of new supply should keep asking rental rates on the rise, although owners are beginning to be more tight-lipped on pricing as multiple occupiers vie for the same space.”