Let’s Talk Logistics Real Estate –
Part Three: Supply and Demand

Part 3:
Supply and Demand

The third piece in the Let’s Talk Logistics Real Estate series focuses on supply and demand. Within the topic are some nuances that showcase the value of real estate both generally and within our real estate asset classes. 

Read on for a refresher on the topic, how supply and demand impact other investments differently than real estate, and why logistics REITs are particularly well-suited to profit from the imbalance. Don’t forget to check out articles one and two if you missed them. 

Supply and Demand 101

Supply is how many goods are produced at a certain price point, and demand is the number of goods desired or purchased at a certain price point. As price increases, supply tends to increase as businesses want to sell more goods for a higher profit, and demand tends to decrease as fewer customers can afford the goods. In equilibrium, the amount of goods supplied equals demand at a particular price, so equilibrium establishes an optimal point where price and quantity sold are set. 

These ideas are built on assumptions that don’t always hold. For instance, supply or demand can be inelastic, which means they cannot freely shift. If supply is inelastic, the business may be unable to increase production with demand increases. In this scenario, the business can charge a higher price for the same amount of goods to narrow the growing pool of interested customers. 

How supply and demand affect investments

Most investments are traded on an exchange where supply and demand have a degree of elasticity. If more consumers demand a stock, they’ll place more orders to purchase it via an exchange. In response, traders can sell more of their available stock to investors. They may also increase their asking price for stocks, but they can also pull the lever of increasing supply.

With investment real estate, it’s much more difficult to increase supply because property can take months or years to develop. As a result, property owners can raise prices in high-demand environments and still sell the real estate, and investors, therefore, earn additional profits.

One real estate subcategory that’s experiencing particular demand increases is logistics commercial real estate. First, the pandemic caused companies to reckon with increased costs and inefficiencies from international supply chains. As a result, both large and small companies are participating in onshoring, or relocating supply chains to exist within their domicile. Second, consumers have new lifestyle preferences and needs. They now prefer delivery within the same day (or a few hours), and they’re more interested in organic and healthy products, which often require storage in cold warehouses before delivery.

Our logistics REIT capitalizes on supply and demand:

Our logistics REIT allows investors to capitalize on the above demand increases as well as supply inelasticities. In fact, we’re using these trends to prioritize some of our five asset classes in 2023:

• Mobility Hub properties are part flexible parking garage, part fulfillment center, and part fleet management depot for ride-sharing services and last-mile delivery—developed and operated right where the customers are in the urban core rather than the urban periphery. These additions can support both onshoring and consumer lifestyle needs, and supply is also particularly low because few (if any) organizations are optimizing parking structures in this way.
• Cold storage properties allow online groceries and meal services to remain cool throughout transportation, which supports consumer lifestyle preferences and needs. Further, supply is particularly inelastic for cold storage because it’s more difficult and expensive to build the appropriate safety protocols. 
• Dry storage properties store consumer goods at room temperature, distinguishing them from cold storage. Since supply has kept up with demand, we’re focusing on acquiring facilities within specific criteria that would allow for cold storage conversion or partial conversion.

Want more?

Future articles in this series will dive into the various ways that our logistics REIT can add value.