The so-called Amazon effect, the shrewd influence the e-commerce giant has had on countless aspects of business because of its massive size, has taken firm hold in the industrial sector of commercial real estate.
The Seattle-based company’s appetite for ever-larger amounts of logistics and distribution center space is driving property prices higher while producing considerable windfalls for investors and developers.
For the second consecutive year, sales of Amazon-leased properties in the United States will top $3 billion, according to CoStar News analysis. Five years ago, such sales accounted for about half that total. In 2020, Amazon properties have been involved in 4% of all industrial deals, an all-time high.
The average sale price of Amazon-leased properties has risen from $65.64 per square foot in 2015 to $130.62 this year, CoStar data shows. That is a nearly 100% increase in value, or an average 20% bump in value per year.
Such increases are driving huge profits for some sellers. Amazon declined to comment on recent deals.
New Mill Capital Holdings paid $4.1 million in December 2018 for One National at 1 National St. in Milford, Massachusetts. The firm sunk money into an extensive renovation and lured Amazon to lease. It sold the property to Nuveen Global Cities REIT last month for $52.7 million.
The location allows deliveries to households within the Boston metropolitan area and surrounding region within 1.5 hours, according to Nuveen.
Wharton Industrial Partners and its capital partner, an affiliate of Walton Street Capital, paid $16.75 million for 2400 Weccacoe Ave. in Philadelphia in September 2019. The two invested in a complete asset repositioning, transforming the former production facility into an urban logistics center.
The property was sold a year later for $71.5 million after signing Amazon.
Having Amazon as a tenant is like having a Good Housekeeping seal of approval, according to Jim Clewlow, chief investment officer at CenterPoint Properties in Oak Brook, Illinois. Yet while that is important, he said real estate’s functionality is what gives it long-term value.
CenterPoint acquired an Amazon last-mile facility at 2995 Atlas Road in Richmond, California, in September for $153 million. The acquisition expanded the firm’s Northern California portfolio to 19 properties and 3.87 million square feet.
“We’re not just looking for [financially stable tenants], we’re looking for the real estate. We don’t buy Amazons in Montana. We bought this because of the location,” Clewlow told CoStar in an interview. “When this came on the market, we thought this is right down the street from where we’re developing real estate, and obviously we like Amazon. So, Amazon was kind of the icing on the cake for us.”
In 2016, Amazon began a surge of leasing activity, absorbing about 120 million square feet of space through the end of 2019. In 2020, it’s leased 90 million square feet, CoStar data shows, and is projected to take another 50 million in 2021.
That growth is coming as e-commerce sales, which were already climbing, surged as COVID-19 drove more and more personal consumption online.
“One could argue that the pandemic has created an all-new ‘premier industrial property profile,’ which is considered best among investors — Amazon-occupied properties,” said Abby Corbett, a CoStar managing director and senior economist. She said the properties are insulated from an occupancy point of view, given Amazon’s stability and growth trajectory, while providing a strong operating income for landlords.
Amazon enjoys a high rating from credit agencies based on the strength of its online brand, as well as the steady performance of its Amazon Web Services division. Property investors are attracted to such companies, according to Carleton Riser, president of Transwestern Development.
Transwestern has leased four projects to Amazon in four markets in the last year and a half.
“Amazon provides a strong credit profile, and they typically sign long-term leases,” Riser said in an email. “Our Amazon deals have all involved buildings we developed speculatively and subsequently leased to Amazon. The location and design were intended to meet broad market needs, and we just happened to lease to Amazon.”
Sometimes Amazon’s presence in a building is not necessarily enough for a buyer to pay a premium, according to Riser. The property and location are still the drivers of pricing.
Riser offered a reminder Amazon isn’t the only game in town when it comes to industrial real estate.
“Buyers are not paying more for its tenancy than they would others, all else being equal,” he argued.