00:00This transformational investment that's happening all around the country really is flowing into just not just the data center, but
00:07just think of all the component parts, cooling towers, generators, the actual manufacturing itself, servers and racks, and all of
00:15that sits in warehouses.
00:16And over the last 12 months, about 15% of our new leasing is actually derived from data center or
00:23data center adjacent demand.
00:25So we're really seeing that across the entire industrial complex at our firm.
00:29Across the complex, across the country as well.
00:31I wonder if you could talk a bit about that, sort of where you're seeing pockets of growth and sort
00:34of what this looks like in real terms geographically as we see the surge of investment in AI.
00:38Yeah, it's a great point, David.
00:40It really started, if you think about it, in sort of those manufacturing belts, the Midwest, the Southeast and Texas.
00:46But I would say that's proliferating even further.
00:49And you look at Phoenix, what's happening there with TSMC and their chip manufacturing plant, all the additional demand that's
00:56in Deer Valley and down the western corridor of Phoenix.
00:59But it is going further afield and it's finding places almost in most markets where this manufacturing renaissance is starting
01:07to happen.
01:07You have about half a billion square feet of real estate, I guess, right?
01:13Is it difficult to find fresh new real estate that doesn't come with community problems, let's say?
01:18Do you know, you're right.
01:19So we are a very large owner.
01:20We have 8,000 customers.
01:22So if you think about just the economic impact to local communities that our customers have in our buildings, it's
01:28vast and wide.
01:29You know, there are, you know, sort of pushback in certain markets, but we do find our ability to add
01:34new stock into those growing corridors, whether it's the Northeast Corridor of Atlanta, the northern part of Dallas, the southern
01:41part of Dallas is still there.
01:42But, you know, we're very mindful.
01:44We love to be a great community partner.
01:45We think there's a huge economic input or outcome of all these buildings and all these businesses growing around the
01:51country.
01:51We've been talking a lot about the backlog in the context of these neocloud companies, certainly the demand for chips.
01:57We've seen that as well.
01:58Talk a bit about it in the context of the work that you do.
02:00I imagine there is such demand for these facilities.
02:03How long does it take to build them?
02:04How much kind of unrealized demand is there at this point in time when it comes to these structures themselves?
02:08Yeah, I mean, to build a warehouse is, you know, a year, a year and a half.
02:12So they're nowhere near the length of other sort of large infrastructure buildouts.
02:16But you're right, the demand, what we're seeing actually more from our customers.
02:20You know, we had one customer that was taking cooling towers.
02:23They took 200,000 feet.
02:25By the time we actually finished the lease, they grew to 700,000 feet.
02:28Their businesses are growing at such a rapid speed.
02:31We're trying to keep up with that.
02:33There is reasonable availability in the market at the moment, but that is coming down.
02:37So the setup is, you know, data center adjacent demand growing.
02:41But you've also got e-commerce growing, continues to grow as generationals change.
02:45You know, we've got this new consumer coming that's very digitally native.
02:50You also have just general infrastructure buildout.
02:52Think of everything that's going on around the country.
02:54And at that exact same time, new supply is off 50% from the high.
02:58What are the pricing trends like?
03:00And who has the pricing power in this market?
03:02Is it the lessors or the lessies?
03:04Do you know, it depends by market and it depends by size.
03:07I would say that pendulum is probably fairly balanced at the moment.
03:11And as availability continues to come down, I think there will be more pricing power coming to the landlords.
03:17We do try to make sure we have great buildings for our customers.
03:20We work with our customers as they continue to grow all around the country.
03:23But it is very much a market-by-market specific question.
03:27Could you talk a bit about your approach to the portfolio?
03:29So I imagine you're kind of cycling through certain properties, offloading some, and adding more to it.
03:34How do you think about that, the way that you're keeping kind of a nimbleness to the portfolio?
03:37Yeah, I mean, we're always looking to make sure we deploy our investors' capital into the markets we think has
03:43the highest growth, or the buildings.
03:44So I think some of that is owning newer buildings, buildings that have better access to power, better access to
03:49labor, growing in the markets.
03:51We've really deployed capital in Texas, in the southeast, in Florida.
03:56It makes sense.
03:57That's where population growth is coming, consumption growth, labor is moving.
04:01So we really tried to think not just what's happening over the next one to two quarters, but where are
04:06these trends, these mega trends, moving over the next three to five years?
04:10Have you managed to solve the power problem?
04:13Now, I'm sure you need some power in warehouses, right?
04:15But in data centers, that problem is exponentially greater, I'm sure.
04:19What do you do about that?
04:21Joe, it's a great question.
04:22I think it's a question that nearly every real estate sector is grappling with.
04:26We're working with local utilities, but also just I'd start with industrial buildings are a really low user of power.
04:34Like if you really think about a traditional industrial building has racking, it has gas-powered forklifts, that is changing
04:40as we start to put LED lights in to lower consumption, but then also automation.
04:45So we're working with our customers.
04:47We are looking at whether it's battery, on-site generation, but we are a low user of power in most
04:53communities,
04:54and we are able to sort of find the power that we need in most places.
04:57We focus so much here on AI, which of course is sexy and very much of the moment, but last
05:01mile delivery, very much your bread and butter.
05:03How do you balance those two things?
05:05Again, kind of the enthusiasm for AI and development at this point in time with what has been something that's
05:09so interrottling for so long.
05:11It's a great point, David.
05:12I would actually say that is an underappreciated growth engine of the country.
05:16If you really look at whether it's Walmart or Amazon or Spreetail, all these companies like e-commerce continues to
05:23grow at a pretty good pace when you compare it to other sectors.
05:27And if you then sort of fast forward, in the next decade, 50% of the US workforce grew up
05:33with Amazon Prime, didn't learn online.
05:35They actually grew up thinking on their phone things should be delivered in 24 hours.
05:40It is actually saying that we continue to see pretty robust strength and quite a resilient and durable demand driver
05:46for the industrial owners.
05:48And we're definitely partnering with that growth.
05:50How far away are we from cresting on this demand for industrial warehouses?
05:55I still think we have a bit of room to run.
05:57I think there's sort of three big, you know, multifaceted demand drivers.
06:01You have e-commerce, this data center spillover.
06:03Then you have all this new on-shoring and near-shoring, whether it's pharmaceuticals in the Midwest.
06:08And at the exact same time, we have limited new supply.
06:11And it's sort of 50%, as I said, 50% off the peak when we're delivering post-COVID.
06:16And by then we'll be ready for space.
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