Are Malls Are Dead? Are Warehouses Too Exciting?

Blackstone Group, a private equity firm, is dropping big money on warehouses, Bloomberg reports. The firm’s real estate fund agreed to buy Gramercy Property Trust, a warehouse company, for $7.6 billion just recently. It snagged Canyon Industrial Portfolio for $1.8 billion in March, and before that, a Canadian warehouse operator for C$2.48 billion ($1.9 billion), reports Fast Company.

Overall, the industrial real estate market is exploding, with acquisitions reaching $20.9 billion Q1, an increase of 34%.

Blackstone cited Amazon as a motivating factor for its innovative purchases. The e-commerce giant is arguably the biggest driver of evolving consumer expectations and is undeniably forcing change on every level of the retail industry. Retailers of all shapes and sizes must sell online and alter their supply chains. Inventory is moving to vast warehouses leased by retailers, and out of brick and mortar stores. Betting on warehouse owners is tantamount to betting on e-commerce’s growing dominance and success.

At the same time, malls are vanishing. Each week in the U.S. last year, a square footage equal to that of the Mall of Ameria (2.8 million square feet) closed each week. Credit Suisse analysts believe 275, or roughly 1 in 4 malls, will have closed by 2022.

There is an increasing interest in gaining and developing warehouses in the era of Amazon, but billionaire Sam Zell said there may be more distribution centers than tenants who need them, reports Bloomberg.

“My guess is it is getting too exciting and we are building too much industrial space,” Zell said Monday in a Bloomberg Television interview from the Milken Institute Global Conference in Beverly Hills, California.

E-commerce is reshaping supply chains, and having an impact on the fortunes of U.S. industrial landlords, particularly near bigger cities, where online shopping is extremely popular. Real estate investment trusts that leased-out space at warehouses and logistics centers have been doing better than those that focus on malls, rental apartments, or office buildings.

Zell, chairman and founder of Chicago-based Equity Group Investments, made his remarks the day after the world’s biggest warehouse owner, Prologis, agreed to acquire DCT Industrial Trust, its rival, for $8.4 billion in stock and assumed debt.

Zell’s Equity International has invested in warehouse owners and developers in Asia, Mexico, and Brazil, the firm’s website said.