What’s next for Industrial & Logistics: A US perspective from Link

May 24 2022

Over the past two years the Australian Industrial & Logistics sector has experienced unprecedented growth, accelerated by COVID-19 and the subsequent rise of e-commerce – growth that shows no signs of slowing.

Australia is not alone.  Our Head of Industrial, Marc Lucas, sat down with Luke Petherbridge, CEO of fellow Blackstone portfolio company, Link (owner operator of the largest US sole industrial and logistics portfolio) to get an insight into the challenges they are facing and how they successfully navigated COVID-19, operating more than 50 million sqm of industrial and logistics space whilst empowering over 800 employees. In Luke’s words – it was a challenge, but one that reaffirmed people are your greatest asset.


ML:   Here in Australia, over the past two years we’ve seen e-commerce ramping up – the growth customers would forecast in 5 years was achieved  in 12 months. Have you seen the same significant shift to online in the US?

LP: In the U.S, we have seen a similar ramp-up as far as e-commerce—and COVID-19 was an accelerant—but if you look at e-commerce holistically, going forward I think it will continue to take share as it’s where consumer preference-of-wallet has shifted and we don’t see it coming back. If anything, the underpenetrated sectors, the likes of grocery, pharmaceuticals, health care and even general merchandise, will continue to accelerate.


ML: Not a week or day goes by without an article talking about geo-political unrest, inflation or increasing financing costs i.e. interest rates rising. Are the same things entering conversations in the US and do you see these being a challenge for Link over the next 12 months?

LP: Inflation is something our customers are facing and at the same time are trying to determine if they can pass it through. From an operational point of view, the negatives are widening of cap rates, higher financing costs and an increase in development costs. Despite this, we are still seeing an acceleration in the fundamentals with large spreads persisting, accelerating rental growth and occupancy at an all-time high in almost all our markets. For instance, there are a lot of great markets such as the Inland Empire in LA, that are highly, highly occupied—we’re talking 0.5% vacant. Vacancy is the greatest asset in a portfolio right now. In short, capital markets are trying to understand the current higher rate environment, but we continue to see great investor demand for our sector and asset class due to long-term growth trends.


ML: In the disruption that has resulted from COVID-19 over the past couple of years, our business has needed to address work from home and increase our focus on wellness and bringing people together. What are the conversations the leadership team at Link are having now?

LP:  The work-from-home concept was not new for us. In fact, some of our people have been working remotely at least partially for years. In general, it’s very similar to what you are experiencing down there. And today we are using a hybrid model whereby employees work in Link offices Monday through Wednesday and have the option to work from home or remotely Thursday and Friday. The No. 1 asset we have is our people, we espouse that in everything we do as our talent is a big differentiator for us and foundational to what we are trying to build. Across all sectors, you can find great assets that are managed poorly and so perform poorly. On the flipside, you can also find challenging assets that outperform when treated properly, which is all driven by innovation, collaboration and a commitment to excellence. As such, we are focused on attracting, retaining and empowering the most talented people on the planet to help us achieve our vision.

Since the beginning of COVID-19, we have gone from 300 teammates to over 850, hiring over 500 people who at the time were exclusively working from home. We are very focused on the health and wellbeing of our people, not only work-life balance, but also around the velocity of work. Again, we have focused on providing flexible work schedules and hybrid arrangements, and we have tried to find new ways to be more adaptive to people’s shifting work-life requirements. For example, we recently introduced “remote month” whereby everybody can work from home 100 percent of the time in August.

We of course continue to manage through COVID-19, thinking of policy settings that will help ensure the safety of our employees and customers, while at the same time trying to drive collaboration and engagement across the organization, which has been the most trying thing I have ever dealt with in my career—they don’t give you lessons on that at university!

Again, we are committed to attracting, retaining and empowering the best of the best—and we have changed the structure of our organisation to accommodate that approach. “Freedom within boundaries” is the mantra I’ve been running my career on; you set boundaries then give people freedom. I truly believe that the greatest and most innovative logistics ideas in the U.S. right now are happening at Link. My job, any senior leader’s job, is to extract these ideas and execute on them.


ML: In Australia, and globally we are continuing to see a greater focus on ESG and sustainability. What is Link doing in the community from an ESG and sustainability perspective and how do you see this focus area evolving?

LP: I would say scale is a huge advantage for Link when it comes to pursuing ambitious ESG goals. Our portfolio is big—we operate the largest portfolio of logistics real estate located exclusively in the U.S.—therefore we can push hard on ESG initiatives. Looking ahead, I believe that our customers are not only going to require that we are doing exactly that, but their customers, employees and shareholders are also going to demand it.

Over the next five years we intend to roll out the largest solar implementation of any warehouse provider in the country. However, the little things like figuring out how to reduce usage, whether it’s via LED lights or sensors, are also important. To do these things you actually need to have guideposts that you are striving for. We have said that by 2024, Link operations will be 100 percent renewable, meaning we will create enough renewable energy to run Link’s entire portfolio, and by 2025 we will be carbon neutral. These are the pillars we are racing toward at the moment because if you don’t set ambitious goals, it’s difficult to rally employee and customer support. It’s a combination of all these ancillary benefits that will make our customers want to stay and help us create value long term. Importantly, we believe that our ESG efforts will help our customers reach their ESG goals.


ML: In a post COVID world, where we are facing new challenges from changing market conditions,  do you see the Industrial and Logistics sector maintaining and continuing its growth trajectory?

LP: Our collective sector is one of the hottest asset classes in the world. Even with all the cracks that might be mounting, there are four significant tailwinds currently that I’ve never seen in an asset class before: e-commerce penetration, which is probably going to continue to grow, so that will necessitate more space; huge consumer demand; lack of supply and supply congestion; and there is also a huge amount of safety stock on its way that has been delayed by lockdowns and supply chain disruption-meaning we’re going to see a lot more onshoring coming back. So, you’ve got increased consumption, lack of supply and customers trying to place their goods on shelves—that all bodes well for the future of the industrial and logistics real estate sector.