This land is valuable for the
evolving US economy. Right now I'm a Dutch Springs Aqua Park
and this land will be transformed into warehouses. The
US will need 1 billion square feet of new industrial space by
2025 to keep up with demand. That estimate doesn't account
for all the warehouses that have already hit the market in the
last year. The first warehouse I and five
other people tried to stop it in the township we we realized this
as we couldn't stop it. And what that did was just start a
progression of one warehouse after the other. We were the
last property. One warehouse will be in Bethlehem Township, the
other one will be in lower Nasser Township. And investors are noticing. The last 12 months have seen the
most growth in our industry say from a square footage, new
requirement perspective than ever in the history of the
industry. That expansion is shifting local
economies where these commercial industrial real estate markets
are particularly red hot, like here in the Lehigh Valley in
Pennsylvania. And it's all happened rather
rapidly and that creates an obvious backlash. We can't have another warehouse
on another piece of farmland or open space. Our folks are very
upset about the warehouses. So we used to be quite welcome
and the worm has definitely turned especially in places like
the Lehigh Valley people feel like when's enough enough. But warehouses support the
online shopping boom and the push for faster deliveries. Consumer expectations our
expectations are not going down by any means. That's where the
demand for warehouses is coming from. And the industry is effectively
sold out through the end of next year. Even if you want space tomorrow
there's a shortage of it. What do all these warehouses
mean for American consumers and business people from Wall Street
to Main Street. There are about 11,000 existing warehouses in
North America equaling over 4.7 billion square feet as of 2020.
During 2020, another nearly 190 million square feet of
warehousing space was under construction in North America.
It's all about proximity to consumers. For example, one of
the biggest markets is the southern New Jersey and eastern
Pennsylvania region. Smack in the middle of that market is the
Lehigh Valley, which happens to be where I live. Plus it ranked
number one for the market with the most warehouses under
construction with 25 point 2 million square feet of buildings
in the works in over 45% of those are already leased. I was born here in the Lehigh
Valley. I've seen progress. My name is Stuart Schooley, I am
president of Dutch Springs, 72 years old, actually. Yeah. 72.
Now I'm 73 now. October 22 was my birthday. You have a tendency
to forget these things as you get older. The Lehigh Valley is right next
to Pennsylvania's I-78. A major highway connecting big cities
like New York to eastern Pennsylvania that allows for one
day access to millions of people. In fact, there's more
than 8 million people just within 50 miles of the markets
core. The region is centrally located along the East Coast
close to three major ports, the Port of New York and New Jersey,
the Port of Baltimore and the Port of Philadelphia. Not to
mention easy access to railroads, 100 major interstate
interchanges, and multiple international airports. This
isn't just happening in the Lehigh Valley, it's also a
broader US story like in Chicago and Southern California. 12 of the last 14 buildings that
we have built in Southern California were 100% leased
before they were finished. That's how strong demand is. Amid the warehouse boom, the
once plentiful supply of land is tightening up. That's pushing
developers to get more creative and find more unconventional
spots like an aqua park and diving center if they want to
keep building here. Dutch Springs has become
surrounded by warehouses. Dutch Springs is a recreation
area. We started it for scuba diving only. We put in an Aqua
Park which is a water park on the water. The Aqua Park has been taken
down for the winter season. We also put in an aerial park
which is a high ropes course and wall climbing, zip line bouncer
for other attractions for the general public rather than just
scuba divers. Owners Stuart and Jane Schooley
have been running the business for more than 40 years. Dutch
Springs sits on about 100 acres of land and half of that
50 acres is the lake that has become a scuba diving hotspot
in the area I you know I enjoy people coming
here I enjoy I enjoyed watching them have fun. But soon this land will be home to
two roughly 300,000 square foot warehouses developed by Trammell Crow. The
Schooley's saw an opportunity to retire by selling the land. When a friend down the street
who sold his land when I heard what he got for the for his
acreage, I said, I went and called them. And now I should be
able to retire. 10 15 20 years ago, you went
there because there were plenty of farms. Now it's becoming
harder, and we're on to the sites like the one that we have
under contract on Hanoverville Road. I guess, you know, I'm a greedy
capitalist, but it gave us the security that we needed here in
our later years, because as a biz, small business owner, you
don't put money away, it goes right back into the business all
the time. So we our our retirement was the land and it
kept going up and up in value. But since they're still under
contract, neither party would disclose the value of the deal.
But it's safe to say it's a fair amount. The continued warehouse
development in the Lehigh Valley has become a point of
controversy. As I say, tough bananas. I'm not
doing anything that hasn't been already done here. There was a lot of outreach, a
lot of people wanted to preserve the the quarry and the diving
opportunities that are there. And so when we heard people were
interested in this, we said let's try and figure this out. First responders who do water
rescues come to Dutch Springs to be trained on how to do that. I believe there will be some
type of diving operation here. We'll work our project around
it. Right now there's at least 8.8
million square feet of industrial space under
construction and industrial rent has increased 11.3% year over
year. The total square footage of the industrial space in the
Lehigh Valley is over 132 million square feet. Why the warehouses want to be
here, it's the same reason that the divers come here. We are
centrally located between Boston, New York, Philadelphia,
Baltimore and Washington D.C. And the Lehigh Valley's is
growing population is attractive to companies looking to reshore
operations or shorten supply chains in an affordable area in
the heart of the Northeast. The Lehigh Valley's GDP hit a record
$43.3 billion just before the pandemic, and over 16% of that
economic activity was part of its strong manufacturing sector.
The area's home to Crayola, Mack Trucks and Peeps maker, Just
Born just to name a few. We have to create an environment
where good jobs can be created. According to CBRE's research,
the northeastern PA and New Jersey markets warehouse the
labor force of about 190,000 is expected to grow by 13.4% over
the next decade. You know that's translating to
$45,000 a year for somebody with just a high school diploma.
Workers right now are benefiting greatly from what's happened in
the Lehigh Valley economy. In logistics real estate
warehouses like this one are much more than stagnant storage
space. Yeah, so what's logistics real
estate? I think the number one thing you should think of is
constant motion, goods getting from where they're produced to
where they're consumed, they need to make multiple stops on
that journey. A warehouse is an industrial big
box facility. It's a distribution center of at least
200,000 square feet. Basically, it's a giant living, breathing
mailbox. There are three different areas that are driving
the need for more warehousing space: logistics and
distribution, third party logistics and then e-commerce.
E-commerce is basically conducted by a company online
related is logistics and distribution. Imagine you buy
something online. And once you place the order,
how does it get to your doorstep? It's that trucking
company or a logistics and distribution company like a UPS
or FedEx that's picking up that package from the e-commerce
facility and then delivering it to the last mile which is your
doorstep. We own and develop buildings and
we leased them out to the world's leading retailers. Our
top 25 customers include Amazon, XPO, FedEx and UPS a wide range
of the world's leading companies. According to its latest earnings
report, its net earnings per diluted share was 97 cents for
the quarter, compared with 40 cents for the third quarter of
2020. Its portfolio includes 612 million square feet of
industrial real estate in the US. In fact, Prologis is
Amazon's biggest landlord. Besides the national ones like
Prologis, Link Logistics is another big one they're a
subsidiary of Blackstone. Then you've got a lot of other
players like Clarion Partner Other major national players
include Duke Realty. , there are regional players as Today about 165 million square
feet of space in 19 markets across the country the major
distribution markets. Warehouse vacancy rates are at
their lowest levels ever, and utilization of warehouses is at
an all time high. Close to 96% of all buildings in
the US have been occupied right now. So 4% vacancy in the standing
stock is, you know, lowest ever. In turn, rents are at all time
highs and pre leasing rates are soaring, that's when companies
lease the buildings before they're even built. The leasing volume is almost
triple in some cases to what's being built every year. This is happening for a few
reasons. We've been having like a decade
long of strong growth, and we had one of the highest leasing
volume numbers in 2019. And then comes, you know, 2020, where we
see an accelerated growth. There's been massive economic
stimulus that has really contributed to consumers buying
goods, not experiences. And that has just driven a whole load of
activity through the supply chains. E-commerce drives demand for
warehousing, because it requires three times the space of the
traditional user. Why does e-commerce require
three times the space. So there's a lot of requirements to
say nothing the inventory breadth and depth is required,
right. Your average big box store might have 25,000
products, SKU stock keeping units SKUs. And your online
stores are millions, there's product variety, direct to
consumer, reverse logistics, and each is taking that all take all
that extra space. Warehousing demand is also
driven by retailers securing more storage space to mitigate
the impact of future supply chain shocks. Historically supply chains were
tuned for efficiency, not resiliency, kind of just in time
versus just in case. And so we are just now starting, that's in
the last 90 maybe 180 days, seeing customers who are
starting to come into the market and lease space to satiate this
just in case type of demand. The need for more warehousing in
the US aligned with consumer expectations. So as consumer expectations
change, there has got to be that impact on the backend of it,
which is supply chain, your tenants, you know produce,
sourcing the goods and getting it to that last mile. Warehouse leasing is likely to
increase further into 2021, according to CBRE. We'll definitely see more multi
story warehouses in the US because there is that need for
online shopping. That's not going away anytime soon. Other trends in warehousing may
continue as well like grocery e-commerce, which requires cold
storage facilities and those facilities come at a higher
price tag. The US may need another 100 million square feet
of cold storage facilities just to keep up with consumer demand
in this space. Then there's robotics and automation, which
is increasingly becoming part of warehouse work. And it's needed because the
volume of activity just that's happening inside a warehouse,
it's increased tremendously. Now packages are coming in at a much
faster rate, they are getting processed at a much faster rate,
and they're getting shipped out much faster than what they were
before. So there is definitely that need for labor. This means our customers able to
get even more value out of these facilities. And in particular,
those that are close to the end consumer I think are going to
become even more valuable as a result of this trend. But hiring more workers and
building more warehousing facilities won't simply fix the
supply chain issues that the economy faces. This is gonna take a while, you
know, I hate to be the bearer of bad news, but this is gonna be a
situation that I think is going to take at least a year
potentially longer to truly rectify itself. As for the Schooleys next
chapter, I'm an adventurer, so to speak.
We're going to do some traveling. I told my wife
though, if she wants to get me a present, she can get me a seat
on SpaceX for three laps around the Earth and I will be
satisfied. Since I since at 72 I'm not the oldest anyway,
they're you know, Shatner's older and so I you know, I think
I can do it.
