While the global health crisis continues to shake up the income-producing real estate sector, the logistics sector is actually benefiting.
Industrial and logistics
Trends in recent years indicate that more and more organizations are moving away from the big cities and establishing logistics centers outside the city walls - in lower cost industrial park locations that benefit from lower rents and taxes. These processes gave rise to the need to establish high-speed transportation routes throughout Israel, thus also encouraging the mobility of a number of leading companies in the Israeli economy. The development of “Marlogs”3 allowing the concentration of activities under one roof helped drive further efficiency and cost reduction in a sector, which is extremely cost-sensitive.
While the global health crisis continues to shake up the income-producing real estate sector, the logistics sector is actually benefiting. The increase in the volume of e-commerce and the strengthening of online mechanisms have created dramatic changes in the world of retail, leading to an increase in demand for large warehouse space for goods and available stock. Revamped building codes have allowed for greater building height with increased capacity and utilization potential. During the COVID-19 period, the growth of the online commerce worlds gave the logistics and storage fields an even more significant boost. Whilst demand has increased, this has not yet been reflected in rents. This lack of immediate reflection on the logistics and industrial rent prices is due to the ample of supply available prior to the pandemic. As the demand increases and more space will be rented, we expect the rent price plateau will stop and the rents will begin to rise.
Data centers
Societal demand for data and data storage space continues to grow, which is fueling increased demand for data centers. On the individual level, the increase of remote work, online education and people generally having more time for browsing, social networking and online shopping, has put unprecedented demands on internet usage. On the corporate level, many companies have and will continue to transition massive amounts of data to offsite servers, while law firms, accounting firms, and other paper-intensive businesses have similarly migrated many of their files to the digital cloud.
Given the strength of Israel’s R&D sector, it is surprising that none of the data management “giants” has yet established a major presence in this sector. The fact that a high proportion of Israel’s technology companies are related to the military, security or intelligence sectors in some way, requiring advanced encryptions and cyber protection, have made it difficult for such a facility to gain approval within Israel. However, Microsoft has now commenced work on $800 million data center, which will support cloud services through the country. Oracle has announced plans for a similar project, with other major players including Amazon, Google, IBM and Salesforce likely to follow in the future.
Microsoft has now commenced work on $800 million data center, which will support cloud services through the country.
Footnotes
3. A logistics center, also known in Israel as the Marlog, is a closed area where all activities related to material absorption, storage, management (according to the type of material), preparation for delivery (distribution), and transportation throughout the supply chain are carried out while in the warehouse the activity is only spot (raw material storage/warehouse For finished products, etc.). Sometimes the geographical location of the Marlogs is determined in the complex by proximity to the services that support them - for example, proximity to the main road/proximity to the airport/proximity to the port, etc.
