Real estate investment manager EQT Exeter recently announced that it closed a $6.8 billion, 70.5 million square foot portfolio on behalf of its private real estate funds, EQT Exeter Industrial Value Fund IV and related investment vehicles. The portfolio mainly comprises logistics properties that serve major corporations’ supply chains. These properties include facilities for “big box” regional distribution, e-commerce fulfillment and last mile distribution. The portfolio spans the top five U.S. distribution hubs of New York, Dallas, Atlanta, Chicago and Los Angeles, as well as the e-commerce and air cargo hugs of Memphis, Indianapolis, Columbus and Louisville.
EQT Exeter has 20 offices across the U.S. alone and has leveraged its local market knowledge and industry relationships to build its portfolio through more than 100 transactions executed over three years. The investments were made on behalf of industrial value fund investors who were looking for value growth through development and leasing activities. The company has developed 15 million square feet of the portfolio and has another seven million square feet under construction. It has also leased 45 million square feet of vacancy and signed 28 million square feet in renewals during the fund’s period of ownership.
Given EQT Exeter’s commitment to sustainability, the 22 million square feet of newly constructed properties are equipped with the newest renewable design features in the industry. As part of the reletting of existing space, EQT Exeter has taken a number of steps to reduce environmental impact, including installing LED lighting, reflective roof materials, and clerestory natural light features, and introducing pervious parking and trailer areas and onsite stormwater retention.
The portfolio buyer is a newly formed global partnership, which has engaged EQT Exeter to continue operating and managing the properties.
“We are grateful to have the opportunity to deliver this transformational deal for our investors in the US industrial value funds, which have the number one performance among all private real estate funds invested during the same time periods,” Ward Fitzgerald, Partner and Head EQT Exeter, said in a statement. “We are humbled to serve the teachers, firefighters, public workers, and so many others whose retirements depend on EQT Exeter’s commitment to success. I am extremely proud of the entire US EQT Exeter team for their tireless, gritty efforts in acquiring, developing, leasing, and stabilizing this high-quality portfolio, enabling us to continue our track record as one of the highest-performing real estate investment managers in the world.
“Furthermore, we are excited to continue collaborating with the buyers, our partners in a new venture as we operate the assets moving forward. Today’s transaction is the fourth multi-billion-dollar portfolio sale for EQT Exeter. Throughout our team’s long history, we have been laying the bricks of design excellence, leasing execution, and strong corporate tenant relationships to serve such partners with large-scale portfolios of the highest quality and the active management expertise to produce steady income and asset appreciation.”
Why is industrial space so popular?
The EQT Exeter deal is one of the largest real estate transactions in U.S. history. The company managed to close the deal for such a large some partly because industrial assets have become increasingly more valuable to both tenants and commercial real estate investors—particularly as online sales rise.
“During the past decade especially, with the rise in e-commerce, industrial distribution and warehouse facilities have become more sophisticated,” Maggie Holmes, Director in Stan Johnson Company’s Atlanta office told Globe St. “These assets are often tailored to specific tenant requirements for picking, sorting and other fulfillment needs.
“These specifications are influencing the value of these assets, with location continuing to be a driver of value as well. I can’t say whether we’ll see additional deals of this size, but I am confident that the industrial sector will continue to see strong demand from investors, as we’re projecting the net lease industrial sector to have its best year on record.”
Location was another factor that helped EQT Exeter’s case. Tenants are not only seeking industrial space to operate, but industrial space that’s in major metropolitan areas. The fact that EQT Exeter’s included distribution hubs in New York, Dallas, Atlanta, Chicago and Los Angeles only made its industrial portfolio that much more attractive to potential buyers.
“In a highly competitive market, a portfolio of quality assets is even more desirable than single assets,” David Lari, partner, Cox, Castle & Nicholson told GlobeSt. “This sale will have an impact on the marketplace. However, every industrial transaction is different, and it is still very much dependent on the quality of the asset and its geographic location.”
The industrial market is expected to excel outside of major metro areas as well, however. As long as e-commerce continues its upward growth, there will be a continued need for distribution centers and industrial CRE, according to Scott Harrell, Principal and Co-owner of Mancini, a tech-driven design firm in New York City. Harrell noted that major companies like Peloton and Volkswagen are signing leases throughout the U.S. that are approximately one million square feet or more each.
“The shift from buying at retail stores to online has become so big that you can even buy your next automobile online,” Harrell told GlobeSt. “This price point demonstrates that these companies are willing to pay almost anything to acquire space to expand and grow their businesses.”
Why is wireless connectivity important for industrial logistics?
Securing industrial CRE space is just the first step for investors and tenants. They then have to ensure that they can meet customer demand, which has only grown in recent years. E-commerce’s growth has only made the global logistic market more complex. The solution—automate operations.
The automation part of the equation is what makes reliable in-building wireless connectivity so crucial to any warehouse’s operations.
“The global enterprise business in first-, second- and third-party logistics has a unique opportunity to deploy private wireless networks for seamless indoor and outdoor low latency connectivity by leveraging all available spectrum assets,” Nokia Enterprise Campaign Strategist for Logistics David McKinley wrote last year. “This will help with automated stored and retrieval systems, industrial IoT sensors, robotic process automation, drone industrial inspection and autonomous equipment or vehicles.”
All of the technology McKinley mentioned will only be as effective as the wireless network on which it is running. This includes robots, automated warehouse transportation vehicles, any type of device that sends reporting data or alerts and more. Both 5G and the Internet of Things (IoT) will be critical to enhancing and enabling such advances in the manufacturing sector, according to Ericsson.
“5G networks offer manufacturers and telecom operators the chance to build smart factories and truly take advantage of technologies such as automation, artificial intelligence, augmented reality for troubleshooting, and IoT,” the company said. “With 5G, operators can create new revenue streams. Alongside energy and utility, manufacturing represents one of the most significant sectors for new revenue potential for operators addressing industry digitalization with 5G technologies. According to the Ericsson study The 5G Business Potential, the expected addressable market in 2026 will be $113 billion, a substantial 7% potential revenue growth from current service revenue forecasts.”
Additionally, 5G technologies can offer the necessary network characteristics. For example, low latency (the amount of time it takes for data to travel from one point to another) and high reliability are needed to support key applications. Meanwhile, high bandwidth and connection density can ensure reliable, omnipresent connectivity. The requirements are not new—manufacturers have needed them on their fixed-line networks—but with mobile 5G tech, they can enjoy more flexibility, lower costs and shorter lead times for things like factory floor production reconfiguration, layout changes, and alterations.
“In our market research we have identified the most crucial manufacturing use case categories that 5G will enable operators to address,” Ericsson said. “These include industrial control and automation systems, planning and design systems, and field devices.”
How will a 5G network impact manufacturing?
If successful, 5G networks and tech should allow manufacturers to maximize production output in their warehouses without sacrificing flexibility, traceability, sustainability, or safety, according to Ericsson. Reliable wireless networks will enable connected machines to help manufacturers collect, analyze and distribute data in real time. Connectivity will also keep workers informed on a consistent basis and get important information to them much faster.
“The need for agile, fluid infrastructure is a consistent theme in Industry 4.0 discussions,” the AT&T Business Editorial Team wrote. “As the devices in tomorrow’s factories grow and become more sophisticated, manufacturers understand that they must be able to adapt the networks that connect them quickly, reconfiguring them at will. 5G’s high capacity, wireless flexibility and low-latency performance make it a natural choice to support manufacturers in these environments. It promises to help them meet several challenges.”
Going forward, manufacturers should expect IoT devices to only become more advanced and will need to make sure their private wireless network can keep pace. The low latency that a 5G network can provide will allow data to flow much faster, which can be critical when it comes to equipment performance, whether a piece of machinery is vibrating or making uncharacteristic noises. Delivering such data as quickly as possible could prevent the equipment from doing further damage, or more importantly injuring a worker.
“Combined with machine learning algorithms, this data can help companies predict when expensive equipment is about to fail, reducing the likelihood of expensive downtime,” AT&T wrote. “When the network gives us advanced warning that a piece of specialized equipment needs a repair, augmented reality using low-latency 5G-enabled headsets will make technicians more efficient. Level 1 technicians can travel to a site and have engineers at headquarters guide them through the repair process remotely via 5G networks, using context-sensitive 3D animations to walk them through the necessary steps.”
Like any innovation, bringing a 5G network into an industrial space won’t be without its challenges. Any devices introduced have to be operational on the wireless spectrum the private network uses. Additionally, all of the 5G equipment, devices and apps will need to be integrated into the network, which will likely require bringing in outside help. Manufacturers will also have to deal with any regulatory requirements and potential spectrum availability issues. Despite these challenges, installing a private 5G network is worth it for all of the benefits it will bring to the warehouse, Toby McLean wrote for Forbes.
“A private 5G network is the clear choice for businesses that require ultra-low latency, reliability and the need to support thousands of devices,” McLean said. “Private 5G networks offer compelling and irresistible benefits to manufacturers because 5G-enabled technologies are the foundation of smart manufacturing and smart factories. This includes advanced technologies where private 5G networks are essential, such as collaborative mobile robots, self-driving machines, swarm intelligence, automatic guided vehicles (AGVs), augmented reality (AR) predictive maintenance, AR/VR headsets, digital twins, etc.”