Corporate Occupier Demand for Logistics Facilities Rising World-wide
Corporate demand for logistics facilities increased in the six months to January 2014, with the Jones Lang LaSalle (JLL) survey showing a global positive balance of 57% of all responses.
Each global region (the Americas, EMEA and Asia Pacific) reported a positive trend in demand over the past six months, the strongest sentiment being recorded by the Americas.
Europe, the Middle East and Africa, usually abbreviated as EMEA, is a regional designation used for government, marketing and business purposes.
This is supported by strong demand numbers across the U.S., where JLL has recorded 15 consecutive quarters of positive net absorption and an annual increase last year (2013 on 2012) of 17%.
JLL experts predict that corporate occupier demand will continue to increase in the next six months (global positive balance of 65%).
This positive expectation is registered in each global region, with the strongest sentiment, once again, in the Americas. Expectations of improving demand are in line with independent forecasts of strengthening economic drivers. The IMF’s World Economic Outlook (January 2014) forecasts that global output will rise to 3.7% this year following 3.0% last year, with world trade volumes up 4.5% compared with 2.7% in 2013.
“Investment in global logistics facilities is growing rapidly—almost as fast as e-commerce shoppers are changing their tastes,” observes Craig Meyer, JLL Americas President - Logistics and Industrial. “What retailers, industrial users and third-party-logistics providers need today may be different as soon as next month. At the same time, investors are bullish on industrial. They recognize the growing need for well-located, flexible facilities that can support these shifting strategies, and we’re seeing this positive sentiment consistently across the Americas, EMEA and Asia Pacific alike.”
Supply for occupation declining in the Americas and EMEA
Over the six months to January 2014, a global negative balance of 23% highlights a downward trend in available logistics supply. In EMEA and the Americas more markets reported a downward trend in supply compared with an upward trend, whereas in Asia Pacific, more markets reported that supply had increased over the past six months than reported that it had fallen.
Globally, JLL experts predict that available logistics supply will decline in the next six months in more markets than it will increase (negative balance of 17%).
On balance, supply is expected to fall across EMEA and the Americas. In Asia Pacific more markets are expected to see supply rise in the next six months than decline.
Rental growth becoming more widespread
Over the six months to January 2014 a global positive balance of 46% reported an upward trend in net effective rents for logistics space. The increase in net effective rents was most widespread in markets across the Americas (positive balance 62%), and less widespread in EMEA (24%) and Asia Pacific (10%).
Looking forward six months, the global positive balance increases to 60%, indicating an expectation that rental growth will spread to more markets.
In the Americas, the positive balance represented 74% of all responses and in EMEA the corresponding balance was 49%. The positive balance was lowest in Asia Pacific at 24%, but this is still above the corresponding balance recorded for the past six months.
Strong investor demand for logistics
Globally, investor demand for logistics real estate has been increasing. Over the six months to January 2014, a global positive balance of 74% reported rising investor demand with all global regions reporting increased investor appetite for logistics product.
These trends are supported by JLL’s global investment data: global industrial/logistics sales volumes increased by 56% between the second half of last year and the first half – with corresponding increases of 65% in the Americas, 48% in EMEA and 43% in Asia Pacific.
Investor demand is expected to remain strong across each global region over the next six months with a global positive balance of 71%.
Supply of investment stock to remain tight
A global negative balance of 17% highlights that the supply of logistics real estate investment stock fell in more markets around the world than it increased in the six months to January. The reduction in stock was most widespread in the Americas and Asia Pacific. By contrast, a small positive balance in the EMEA region indicates that the supply of investment stock increased over the past six months in more markets than it fell.
Looking forward six months, a global negative balance of 11% highlights an expectation that the stock of investment product will remain in short supply, with supply predicted to decrease in more markets around the world than it will increase.
This downward trend is expected in all global regions, with supply falling most widely across markets in Asia Pacific, followed by the Americas and EMEA.
Further cap rate compression expected
Over the six months to January 2014, a global negative balance of 44% shows that cap rates (yields) fell in more markets than they rose. This yield compression was reported in each global region, with the fall in yields being most significant in EMEA.
JLL experts predict that yield compression will continue over the next six months in each global region, reflecting expectations of strong investor demand. Lower yields (cap rates) combined with rising rents will support logistics capital value growth in each global region.
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