FedEx’s recent announcements that its earnings have fallen far short of projections – and that it will close more than 100 facilities and examine additional cost cutting measures – are causing ripples of concern through the Industrial and Logistics commercial real estate sector.
FedEx disclosed on Sept. 15 its ecommerce deliveries for the three-month period ending Aug. 31 missed projections by $300M, and its FedEx Express division forecasts were off by $500M. FedEx plans to close five corporate offices and as many as 140 FedEx Office stores.
The company will also cancel some of its network capacity expansion projects. FedEx has not announced plans to close any major warehouse facilities, but analysts fear those could be on the horizon. Experts say choosing what portions of its footprint the company can reduce, if any, will be a difficult balancing act to pull off.
Analysts and industry observers fear the announcements could trigger greater cooling for the Industrial and Logistics sector, even though there is, so far, no evidence of a broad-based slowdown.
As the pandemic-fueled boom in ecommerce demand has returned to a more normal state, and as inflation takes a toll on consumer spending, delivery companies and online retailers have taken a hit.
Amazon has closed dozens of warehouses and shifted plans for others. However, given an exceptionally high demand for space, much of the disruption has been readily absorbed. While normalization may be beneficial for smaller tenants desperate for space, many landlords are bracing for a slowing in rent increases and reduction in rates.
Even though the market has not yet been appreciably disrupted, some market experts are afraid the Industrial sector may be caught up in an overbuilding cycle. Industrial space under construction in Q2 was 699MSF, a more than 100% increase from pre-pandemic levels. Slightly less than 26% of that space is pre-leased, according to data from Cushman & Wakefield. (Source)