The Future Of Logistics Is Wide Open For Small Companies And Giants Alike
When it comes to logistics, it seems like bigger should always be better. The largest companies can afford the biggest warehouses at airports and the closest warehouses to city centers. They should be able to drive down costs until there are only a handful of companies owning warehouses nationwide. But according to Phil Hawkins, that is not how it works.
Hawkins is the former CEO of DCT Industrial Trust, a logistics company that was acquired in an $8.5B deal by Prologis, the world’s largest warehouse owner. Now he serves on the Prologis board of directors. And even though DCT’s acquisition helped solidify the dominance of one logistics giant, Hawkins thinks the future of logistics belongs to small and large companies alike.
“Whether you’re public or private, local or global, there are a number of ways to add value for customers,” Hawkins said. “After the Prologis acquisition, DCT alumni founded at least two new companies, and others helped existing companies expand to new markets. There are lots of flavors of ice cream out there. It won’t just be chocolate and vanilla. It will be Baskin-Robbins.”
The need for e-commerce fulfillment centers means demand for warehouse space is at a 19-year high. Investors see industrial real estate as their most profitable future. For Hawkins, it is just nice to be taken seriously.
“Fifteen years ago, people didn’t care about industrial,” Hawkins said. “They thought it was a cycle play, or that it was too volatile for long-term investment. It’s more fun to be popular.”
What made investors begin to care was the 2008 Great Recession. When markets slid, warehouses, land and talent were all going cheaply. Companies like DCT were able to build portfolios of irreplaceable properties that would be almost impossible to assemble today.
“I don’t wish a downturn on anyone. But looking back, it was one of the best things that could have happened to DCT,” Hawkins said. “To build a portfolio today, when cap rates are low and investor demand is strong, takes a long time, and it’s very expensive.”
The downturn helped create warehouse empires. Industrial REITs like Prologis have continued to grow, often by purchasing regional and local companies and incorporating their existing assets rather than building new ones. Their scale gives these giants access to cheap capital and allows them to operate efficiently.
But Hawkins thinks small, privately held companies are going to be just as crucial as large companies going forward. Small companies with deep local knowledge, specialization within a vertical or a convincing strategic vision have room to thrive, even alongside a few behemoths.
“Size is only one competitive advantage," Hawkins said. “Small companies don’t have the global capital advantages of Prologis, or the existing leasing relationships, but they have tenacity, local relationships and a desire to succeed that allows them to compete.”
As consumers demand faster delivery, industrial companies are focused less on price and more on location and function. A small warehouse near a city center may now be far more valuable than three warehouses 20 miles from downtown, Hawkins said. A small company that makes one smart purchase can do business in an established market, or dominate an emerging one.
“When DCT was purchased, we were growing through development and smaller acquisitions and not necessarily looking to acquire anyone else — we were doing fine being midsized,” Hawkins said. “And that model still works. You don’t have to be big to be successful. And if you are big, you can’t act big at a local level. You’re still expected to be responsive, creative and flexible, or else no one will do business with you. Because the market is still wide open.”
It is an exciting time for logistics, and developers are eager to move on industrial projects. Hawkins said expansion makes sense given the current economic climate, but that a looming recession could lead to another round of consolidation.
“Right now, everyone’s doing fine, but we’ll see what happens when the next downturn comes,” Hawkins said. “Come the next downturn, those who are the best at their particular approach will do well, those who are mediocre won’t exist.”
Hawkins will deliver the keynote at NAIOP’s I.CON West 2019, June 5-7, in Long Beach, California.
This feature was produced in collaboration between Bisnow Branded Content and NAIOP. Bisnow news staff was not involved in the production of this content.