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ShipBob fulfillment center in Moreno Valley, California
ShipBob

After ShipBob decided last July to let staffers work from anywhere, the logistics start-up had its landlord erect a wall in the middle of its Chicago headquarters so half the space could be rented out to another company.

On March 1, the office reopened at reduced capacity for socially distanced meetings.

But while it’s using less office space, ShipBob’s real estate needs have been expanding at a breakneck pace. The company, which provides fulfillment services to online retailers, has more than doubled its warehouse count since mid-2020 to 24 locations today, including four outside the U.S., with plans to reach 35 by the end of 2021.

The seven-year-old company is a microcosm of the U.S. commercial real estate market. While office vacancies have soared as employers prepare for a post-Covid future of distributed work, the industrial market is hotter than ever because of a pandemic-fueled surge in e-commerce and increased consumer demand to get more products at Amazon-like speeds.

Vacancy rates in industrial buildings are near a record low and new warehouses can’t get built quickly enough to meet the needs of clothing makers, furniture sellers and home appliance manufacturers. Real estate firm CBRE said in its first-quarter report on the industrial and logistics market that almost 100 million square feet of space was absorbed in the period, the third-highest amount ever, and that a record 376 million square feet is under construction.

Rents rose 7.1% in the quarter from the same period a year earlier to an all-time high of $8.44 per square foot, CBRE said. The firm wrote in a follow-up report last month that prices in coastal markets near population centers and inland port hubs are soaring by double-digit percentages. In Northern New Jersey, average base rent for industrial properties jumped 33% in May from a year earlier, and California’s Inland Empire saw an increase of 24%, followed by Philadelphia at 20%.

“The need to have facilities in these markets, coupled with record low vacancy rates, has often led to bidding wars among occupiers that are driving up rental rates,” CBRE said.

Skyrocketing prices

The wheels were well in motion before Covid-19 hit the U.S. in early 2020. Amazon was already turning next-day delivery into the default option for Prime members, and big box stores like Best Buy and Walmart were racing to add fulfillment space to try and keep pace.

The pandemic accelerated everything. Consumers were stuck at home and ordering more stuff, while physical stores had to go digital to stay afloat.

Grocery delivery added to the market tightness, as Instacart and Postmates were suddenly inundated with orders from customers who didn’t want to enter a Costco, Albertsons or Kroger store. Instacart is now planning a network of fulfillment centers loaded up with cereal-picking robots, according to Bloomberg, and Target has bolstered same-day fulfillment through so-called sortation centers.

In addition to the rapid change in consumer behavior, the pandemic also exposed the fragility of the global supply chain. With facilities in China and elsewhere shuttered, stores experienced dramatic shortages of apparel, car parts and packaging materials.

Retailers responded by securing more storage space to mitigate the impact of future shocks, said James Koman, CEO of ElmTree Funds, a private equity firm focused on commercial real estate.

“The reshoring of manufacturing is gaining momentum,” Koman said. Companies are “bringing more products onshore and need to have room for their products so we don’t fall into another situation like we’re in right now.”

All of those factors are contributing to skyrocketing prices, he said. Additionally, construction costs are higher because of inflation and supply constraints, and companies are building more sophisticated facilities, filled with robots.

“You have these automatic forklifts, conveyor belts, and automated storage retrieval systems,” Koman said. “All this is where the world is going.”

Amazon introduces new robots named Bert and Ernie to fulfillment center operations.
Source: Amazon Inc.

Betting on a long-term need for fulfillment and logistics facilities, ElmTree has acquired about $2 billion worth of industrial space over the past seven months, outpacing prior years, Koman said. He estimates the U.S. will need an additional 135-150 million square feet annually to support e-commerce growth.

For ShipBob, the e-commerce boom has played right into its business model. But competition for space is simultaneously forcing the company to reckon with higher costs.

ShipBob works with brands like perfume company Dossier, powdered energy drink maker Juspy and Tom Brady’s sports and fitness brand TB12, providing a wide network of fulfillment centers for fast and reliable shipping and software to manage deliveries and inventory.

Unlike the retail giants, ShipBob doesn’t go after large football field-sized fulfillment centers, and only has leases at a few of its facilities. Rather, it looks for warehouses that are typically family-owned with 75,000-100,000 square feet and some unused capacity. It then outfits them with ShipBob technology and pays based on order volume and the amount of space it uses.

While ShipBob isn’t signing leases, it is competing for space in warehouses that are now sitting on much more valuable property than they were a year ago. ShipBob CEO Dhruv Saxena said that his company has to be in areas like Southern California and Louisville, Kentucky, a major transportation and logistics hub, despite the rapid increase in prices.

“We have to find ways of placing inventory closer to the end customer even if it comes at a lower margin for us,” Saxena said in an interview late last month after his company raised $200 million at a valuation topping $1 billion.

ShipBob competes directly with a number of fulfillment outsourcing start-ups, including ShipMonk, Deliverr and Shippo. Those four companies have raised almost $900 million combined in the past year.

Not just Amazon

Saxena said a major reason smaller retailers turn to ShipBob is to avoid the costs and hassle of finding fulfillment space and hiring the requisite workers. He likened it to companies outsourcing their computing and data storage needs to Amazon Web Services and paying for how much capacity they use rather than leasing their own data centers.

“The same math applies,” Saxena said. “I can open a warehouse, hire people and rig the software or I can convert those fixed costs into variable costs where I pay on a transaction basis.”

ShipBob employees with CEO Dhruv Saxena in middle
ShipBob

Nate Faust is in the very early stages of building Olive, an e-commerce start-up that’s working with brands to offer more sustainable packaging and delivery options by using recycled boxing materials and bundling items.

Olive opened its first two 30,000 square foot warehouses last year, one in New Jersey and the other in Southern California. Faust, who previously co-founded Jet.com and then worked at Walmart after the acquisition, said if he were entering those leases today, they’d easily be 10% to 15% higher.

Olive isn’t actively in the market for more fulfillment centers and doesn’t face a lease renewal until February, but Faust said start-ups have to be opportunistic. He’s working with real estate firm JLL, which he said is constantly on the prowl for attractive space.

“We have them looking all the time because industrial space is so tight right now,” Faust said. “If we find something perfect for what we’re looking for, it’s not unreasonable to have overlapping leases.”

Olive package
Olive

Vik Chawla, a partner at venture firm Fifth Wall, which invests in property technologies, said the challenges in the real estate market are driving more emerging brands and sellers to the outsourcing model.

“It’s very difficult as a single e-commerce business to try to secure attractive space and run your business,” Chawla said. “The line of people trying to get into industrial buildings is out the door.”

Many tenants occupying that line are traditional big third-party logistics providers (3PLs), like C.H. Robinson and XPO Logistics as well as UPS and FedEx. At the top end of the market, Amazon, Walmart and Target are mopping up space to speed distribution and, in Amazon’s case, to manage fulfillment for its massive marketplace of third-party sellers.

Prologis, the largest U.S. owner of industrial real estate, said in a May report that utilization rates, which indicate how much space is being used, reached close to 85%. Vacancy rates are at 4.7%, close to a record low, the company said.

Amazon is the real estate firm’s biggest customer, occupying 22 million square feet, followed by Home Depot at 9 million and then FedEx and UPS, according to Prologis’ latest annual report. Walmart is seventh.

In April, an analyst on Prologis’ earnings call asked what types of clients were most actively pursuing leases.

“E-commerce is a big component of it, but it’s certainly not all about Amazon,” Michael Curless, Prologis’ chief customer officer, said in response. “Certainly, they’re the most active customer. But we’re seeing a lot of activity from the Targets, the Walmarts, Home Depots, and lots of evidence of the Chinese players making their way to the U.S. and Europe as well.”

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Alibaba to split into 6 units and explore IPOs; shares pop 9%

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Alibaba to split into 6 units and explore IPOs; shares pop 9%

Alibaba has faced growth challenges amid regulatory tightening on China’s domestic technology sector and a slowdown in the world’s second-largest economy. But analysts think the e-commerce giant’s growth could pick up through the rest of 2022.

Kuang Da | Jiemian News | VCG | Getty Images

Alibaba said Tuesday it will split its company into six business groups, each with the ability to raise outside funding and go public, in the most significant reorganization in the Chinese e-commerce giant’s history.

Each business group will be managed by its own CEO and board of directors.

Alibaba said in a statement that the move is “designed to unlock shareholder value and foster market competitiveness.”

Alibaba’s shares popped more than 9% in pre-market trade in the U.S.

The move comes after a tough couple of years for Alibaba which has faced slowing economic growth at home and tougher regulation from Beijing, resulting in billions being wiped off its share price. Alibaba has struggled with growth over the past few quarters.

Alibaba is now looking to reinvigorate growth with the reorganization.

The business groups will revolve around its strategic priorities. These are the groups:

  • Cloud Intelligence Group: Alibaba CEO Daniel Zhang will be head of this business which will house the company’s cloud and artificial intelligence activities.
  • Taobao Tmall Commerce Group: This will cover the company’s online shopping platforms including Taobao and Tmall.
  • Local Services Group: Yu Yongfu will be CEO and the business will cover Alibaba’s food delivery service Ele.me as well as its mapping.
  • Cainiao Smart Logistics: Wan Lin will continue as CEO of this business which houses Alibaba’s logistics service.
  • Global Digital Commerce Group: Jiang Fan will serve as CEO. This unit includes Alibaba’s international e-commerce businesses including AliExpress and Lazada.
  • Digital Media and Entertainment Group: Fan Luyuan will be CEO of the unit which includes Alibaba’s streaming and movie business.

Each of these units can pursue independent fundraising and a public listing when they’re ready, Zhang said.

The exception is the Taobao Tmall Commerce Group, which will remain wholly-owned by Alibaba.

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The company sees the creation of the six businesses as a way to be nimbler.

“This transformation will empower all our businesses to become more agile, enhance decision-making, and enable faster responses to market changes,” Zhang said in a statement.

The reorganization also comes at a time when there are signs that Beijing is warming back up to technology businesses, as the government seeks to revive economic growth in the world’s second-largest economy.

Jack Ma, Alibaba’s outspoken and charismatic founder who was out of the public eye and travelling abroad for several months, has returned to China, in a move perceived as an olive branch from Beijing.

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4G internet is set to arrive on the moon later this year

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4G internet is set to arrive on the moon later this year

Nokia hopes to install a data network on the moon sometime in 2023, an executive told reporters.

Thomas Coex | AFP via Getty Images

Nokia is preparing to launch a 4G mobile network on the moon later this year, in the hopes of enhancing lunar discoveries — and eventually paving the path for human presence on the satellite planet.

The Finnish telecommunications group plans to launch the network on a SpaceX rocket over the coming months, Luis Maestro Ruiz De Temino, Nokia’s principal engineer, told reporters earlier this month at the Mobile World Congress trade show in Barcelona.

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The network will be powered by an antenna-equipped base station stored in a Nova-C lunar lander designed by U.S. space firm Intuitive Machines, as well as by an accompanying solar-powered rover.

An LTE connection will be established between the lander and the rover.

The infrastructure will land on the Shackleton crater, which lies along the southern limb of the moon.

Nokia says the technology is designed to withstand the extreme conditions of space.

The network will be used within Nasa’s Artemis 1 mission, which aims to send the first human astronauts to walk on the moon’s surface since 1972.

The aim is to show that terrestrial networks can meet the communications needs for future space missions, Nokia said, adding that its network will allow astronauts to communicate with each other and with mission control, as well as to control the rover remotely and stream real-time video and telemetry data back to Earth.

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The lander will launch via a SpaceX rocket, according to Maestro Ruiz De Temino. He explained that the rocket won’t take the lander all the way to the moon’s surface — it has a propulsion system in place to complete the journey.

Anshel Sag, principal analyst at Moor Insights & Strategy, said that 2023 was an “optimistic target” for the launch of Nokia’s equipment.

“If the hardware is ready and validated as it seems to be, there is a good chance they could launch in 2023 as long as their launch partner of choice doesn’t have any setbacks or delays,” Sag told CNBC via email. 

Nokia previously said that its lunar network will “provide critical communication capabilities for many different data transmission applications, including vital command and control functions, remote control of lunar rovers, real-time navigation and streaming of high definition video.”

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Elon Musk says only verified users will show up in Twitter’s recommendation feed in further shake-up

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Elon Musk says only verified users will show up in Twitter's recommendation feed in further shake-up

Elon Musk Twitter account seen on Mobile with Elon Musk in the background on screen, seen in this photo illustration. On 19 February 2023 in Brussels, Belgium.

Jonathan Raa | Nurphoto | Getty Images

Elon Musk said that only verified accounts will appear in Twitter’s recommendation feed, as the billionaire further shakes up the social media platform.

Twitter’s “For You” tab shows users tweets from people they don’t follow, but that are recommended to them by the social media firm’s algorithm. To date, this has showed accounts from any Twitter users, whether they are verified or not. 

But Musk announced in a tweet late Monday that, going forward, only verified accounts will show up in the “For You” section of the site.

Musk claims the move “is the only realistic way to address advanced AI bot swarms taking over.”

Musk also said that only verified users will be able to vote in polls.

Since buying Twitter last year, Musk has sought to shake up the way the company does verification. Before Musk’s acquisition, Twitter used to verify users with a blue check mark as a way to identify the account matches the person or company it says it is. This process was free and applied to celebrities, journalists, government officials and organizations.

Musk introduced a subscription service last year called Twitter Blue that allows a user to pay $8 per month to be verified and obtain the blue check mark.

Twitter said last week that it would begin to wind down its “legacy verified program” and remove “legacy verified” check marks on Apr. 1. The company is prompting people with the legacy checkmarks to sign up for the Twitter Blue subscription service.

Musk has been trying to find ways to generate new revenue streams at Twitter, with paid verification being a flagship policy. But the company has reportedly lost a huge amount of value.

Musk told employees last week that Twitter is now valued at $20 billion, according to an email sent to employees and seen by the New York Times. That is down more than 50% from the $44 billion Musk paid for company last year.

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