0:00 Amazon’s largest warehouse yet will be located in Ontario
01:52 Are we in a housing bubble?
04:25 Retailers are helping customers deal with rising gas prices
Amazon just signed a lease for its largest warehouse yet – 4.1 million square feet of warehouse space in Ontario. Just how big is 4 million square feet? It’s the equivalent footprint of seven Great Pyramids, 16 Roman Colosseums, or 71 football fields. The plan is to place this new warehouse on 370 acres near the Chino airport that was formerly used for agriculture and dairy farming. It’s expected to be along Merrill Avenue between South Grove and Carpenter Ave.
The rental is an unexpected development because Amazon has been moving away from leases and more toward owning its properties, particularly for its larger buildings. In fact, Amazon spent $450 million on new purchases over the last year. But this lease shows that Amazon is still interested in renting space for its distribution centers under the right circumstances.
The Inland Empire is the country’s top market for industrial real estate, and currently has 42.5 million square feet of industrial space under construction, of which about 10 percent is this one warehouse for Amazon, and with all of this industrial space in the IE, it has only a 1.6% vacancy rate which is just incredible!
Although I focus on retail real estate, the effect of Amazon and other online retailers is undeniable on shopping centers.
Are we in a Housing Bubble?
It’s clear that many people these days are worried about the state of the housing market. Specifically, they want to know: are we in a real estate bubble that’s about to burst?
This chart shows how housing prices have gone through the roof over the past two years. A recent article in Forbes doesn’t believe that we’re in a bubble, and I tend to agree. Here are four reasons why:
1. Strict Lending Standards
Lenders are still only lending to those with good credit, and are checking full financials. Banks are wary about being fined for violating the regulations put in place after the 2007 crisis, so they are holding buyers to high standards.
The Dallas Federal Reserve Believes that We May Be in a Bubble
But there are opposing views on this topic, one of which comes from the Federal Reserve of Dallas, which does believe we are in a bubbly market but doesn’t expect the same level of a crash as we saw in 2007.
So, who’s going to be right? No one knows for sure. But I still think that the housing market and the commercial market still have a good run ahead. What happens in the commercial market tends to follow what happens in the residential market, since typically the longer leases in commercial real estate insulate property owners from the immediate effects of what’s happening in the economy. I can tell you that retail commercial activity is still strong, with cap rates at all-time lows, and very low inventory.
Retailers are helping customers deal with rising gas prices
With the average price of gas over $4 per gallon, Americans are feeling pain at the pump. But some companies are using creative methods to ease that burden. For example, Krispy Kreme is having a little fun with the issue. They claim that they are tapping into the “strategic donut reserve,” and are selling a dozen glazed donuts for the price of a gallon of gas each Wednesday. This is more than half off the usual price. Fast-food chain Bojangles is also doing its part to help customers by handing out $10 gas cards to 100,000 customers who order a family meal at one of their restaurants.
While some businesses are providing gas relief, others are using rising fuel prices to help drive traffic and sales. Some examples are all the big-name membership warehouse clubs that have branded gas stations. These are often less expensive than other gas vendors.
For example, Costco has seen its overall sales jump as gas sales act as a draw for new memberships. Sam’s Club is offering a 10% in-store credit every Tuesday for club members who use its credit card at any gas station. And BJ’s is giving 50 cents off per gallon to those who spend $100 or more in the club. If they use a BJ’s credit card, they get an additional 10 cents off per gallon. Sam’s and BJ’s are using these promotions as traffic drivers to get customers in the door.
Some grocery chains, such as Albertsons, are promoting their loyalty program for purchases made at its stores. The rewards from this program include money off of groceries or gas – up to 10 or 20 cents off per gallon.
I hope you enjoyed this week’s newsletter and learned something. Thanks for reading and I’ll see you next time!
Progressive Real Estate Partners is a boutique retail brokerage firm with a unique approach to leasing and selling retail properties. Established in 2007, our emphasis on retail AND geographic focus on Southern California’s Inland Empire region has enabled us to become the most efficient and effective brokerage within the marketplace.