Consumer-Packaged Goods Industry Report: Building Equity
A perfect storm formed within the industrial market in the spring of 2020, as the lockdown drove people indoors, demand for goods soared, supply chains were disrupted, and the people deemed essential were pushed to the breaking point to provide goods and services. The demand for warehouse/distribution space skyrocketed while new construction paused, limiting availability and driving lease rates to all-time highs.
The consumer-packaged goods (CPGs) industry has been pushed into a particularly difficult position as margins are being squeezed due to inflation, higher transportation costs and escalating fixed costs, such as real estate, causing the price of goods to increase. Meanwhile, a volatile macro-economy is causing consumer sentiment to fall, leaving CPGs in the unenviable position of transitioning from a just-in-time to a just-in-case strategy to predict future demand and finding creative ways to protect margins.
As CPGs navigate this difficult environment, there are options to consider relating to commercial real estate, particularly larger companies with substantial portfolios. Larger portfolios provide leverage and opportunity. For example, a shifting perspective on owned assets has created a boom in sale-leasebacks in the industrial sector despite challenging capital market conditions. Owner/users are capturing upfront gains to relieve debt and create revenue bridges to offset some of the margin squeeze. Additional non-traditional equity may be captured by companies that have long-term leases in place, signed before the recent run-up of rates, which are now well below current market rates. This “Lease Equity” offers hidden value and allows flexibility for companies with existing spaces that do not align with current needs.
The consumer-packaged goods (CPGs) industry has been pushed into a particularly difficult position as margins are being squeezed due to inflation, higher transportation costs and escalating fixed costs, such as real estate, causing the price of goods to increase. Meanwhile, a volatile macro-economy is causing consumer sentiment to fall, leaving CPGs in the unenviable position of transitioning from a just-in-time to a just-in-case strategy to predict future demand and finding creative ways to protect margins.
As CPGs navigate this difficult environment, there are options to consider relating to commercial real estate, particularly larger companies with substantial portfolios. Larger portfolios provide leverage and opportunity. For example, a shifting perspective on owned assets has created a boom in sale-leasebacks in the industrial sector despite challenging capital market conditions. Owner/users are capturing upfront gains to relieve debt and create revenue bridges to offset some of the margin squeeze. Additional non-traditional equity may be captured by companies that have long-term leases in place, signed before the recent run-up of rates, which are now well below current market rates. This “Lease Equity” offers hidden value and allows flexibility for companies with existing spaces that do not align with current needs.
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