Business Schumpeter The warehouse king Why industrial wasteland is the new
battlt ground for property giants In the late 1990s Hamid Moghadam, an
Iranian-born property developer, made a $5m bet on Webvan, an American
online grocer. It was a bust. Webvan was one of the most spectacular casualties
of the dotcom crash. More galling still, Mr Moghadam turned down the
opportunity to invest in another e-commerce upstart called Amazon, thinking
its focus on books was too narrow compared with groceries. Yet some people
can win even by losing. Sensing a potential bounty in the online craze, the firm
he cofounded, AMB, sold its portfolio of shopping centres and bought millions
of square feet of warehouse space on the tarmac of American airports instead.
"We got the company wrong, but we got the big trend right," he says. Two
decades later the company he heads, Prologis, is Amazon's biggest landlord. Mr
Moghadam, now 63, stands tall over the world's warehouse business. A
Stanford graduate who got his start in property because no one else in America
would hire him during the Iranian revolution, Mr Moghadam has made a career
of bold bets. In 2011, with property still reeling from the financial crisis of
2007-09, he led a bumper deal to unite AMB and Prologis, a bigger rival, with a
combined $46bn of owned and managed assets. Since then the
property investment firm has expanded globally. It has assets of $125bn and
floor space of lbn square feet (90 square kilometres, or a
Manhattan-and-a-half). A surge of e-commerce during the
covid-19 pandemic has helped underpin its share price; its market value of
$68bn is just below an all-time high. Yet Mr Moghadam is not alone in
realising that the humble shed can be as good an investment in the e-commerce
era as shovels were during the Gold Rush. Blackstone, the world's largest
alternative-asset manager, invested more than $25bn last year in warehouses in
America and Europe. It calls logistics its "highest-conviction global investment
theme". A battle over industrial wasteland is underway. It is bard to imagine
Stephen Schwamnan, Blackstone's high society boss, talking as passionately
about the nitty-gritty of logistics as Mr Moghadam (who has a fraction of Mr
Schwarzman's wealth). Yet a contest between the king of warehouses and the
baron of private equity will be worth watching. It will not just shape the future
of e-commerce. It will change the urban landscape, too. To see why, cycle, as
Schumpeter did last weekend, up London's Lea Valley, an idyll of canal boats
and riverside vegetable gardens running from the graffiti-covered East End to
the capital's north. Stop at the Ravenside Retail Park, a place of shuttered stores
like Mother care, a well-known British brand, and Maplin, an electronics retailer.
It is destined to become ground zero for the retail apocalypse. In January
Prologis spent ￡51n ($68m) acquiring the site, just before covid-19
accelerated the agony of its remaining tenants. In a few years, once they, or
their leases, expire, Prologis hopes to turn the area into a multistorey warehouse
for e-commerce firms like Amazon. That is part of a global pattern. In America
such logistics hubs are rising from the rubble of dead shopping malls. It is easy
to dismiss the warehouse business. As one industry boss puts it, investors used
to think of it as "four walls and a roof that you hope doesn't leak"-in other
words, highly commoditised. Yet Mr Moghadam says it is enthralling. The first
task, he says, is to decide on which end of the supply chain to be. He settled on
mass consumer markets around the world rather than serving producers,
because, as he puts it, "Consumers do not move, factories do." As a result, his
warehouses sit close to huge urban areas where land is scarce. It also requires
patience. In America it has taken decades for e-commerce to eke out a
double-digit share of retail spending. Lockdowns have turbocharged the shift.
Before the pandemic about a fifth of Prologis's warehouse construction was for
e-commerce, and the rest for other forms of logistics. The e-commerce share is
now as high as 40%, Mr Moghadam says.