Prologis Study Reveals New Pressures Facing E-Commerce Supply Chain Managers

San Francisco-based Prologis released its fourth annual Logistics Rent Index recently, drawing on data from its' global portfolio and examines rental growth in critical logistics real estate markets throughout the world.

One key observation made in the study shows that logistics real estate rent growth remained considerable in 2018, with rents rising 6% globally. Consistent with the past several years, the U.S. outperformed, with 8% growth.

Analysts noted, however, that other regions were just as notable. China was a clear leader with 8% growth. In Europe, rents rose 5%, a near doubling in growth from 2017 and the fastest annual growth in the region based on data reaching back more than 10 years.

Pricing is historically strong, with low vacancies translating to higher rental rates as customers compete for available space. High-barrier-to-supply markets with geographic, legislative and other hurdles to new development have the strongest fundamentals.

Finally, shippers reliant on reverse logistics should plan well in advance of e-commerce demands and act quickly to secure the best space in an increasingly competitive environment.
“Returns are an important part of the e-commerce ecosystem and are one reason why e-commerce generates 3x the logistics real estate demand vs. brick-and-mortar retailers. In turn, e-commerce has contributed to very strong demand in this cycle, pushing vacancy to an all-time low and boosting competitive pricing power,” said Melinda McLaughlin, vice president - research, Prologis.

The report also offers these predictions:

• Despite recent macro volatility, market vacancy rates are at or near historic lows, leading users to bid rents higher in pursuit of their needs.
• New construction costs are growing at a historically high pace, prompting mid- to high-single-digit annual growth with leading markets well into the double digits.
• Strengthening conditions in Europe are expected to shift growth leadership towards the region.

The Prologis Logistics Rent Index, introduced in 2015, examines trends in net effective market rental growth in key logistics real estate markets in the United States, Europe, Asia and Latin America.2 Its unique methodology focuses on taking rents, net of concessions, for logistics facilities. Prologis Research combines our local insights on market pricing with data from its global portfolio to produce the index.

Here are the Key findings:

• Rent growth remains high. Rents grew 6% in 2018, in keeping with similar growth in 2017.
• High growth in the U.S. Expansion continued across the U.S., which posted 8% rent growth. Infill markets continued to outperform areas with fewer barriers to supply.
• Acceleration in Europe. Rental growth escalated to 5%, a break from the recent 2-3% that had characterized the last several years, as growth broadened on the continent, led by a roll down in concessions and increases in headline rates.
• Top growth in China. Multiple factors coalesced to drive rent growth of 8%, showcasing the potential for outsized growth as China's megalopolises increasingly become infill markets and shippers find the need to adopt Class-A space.
• Considerable increases in the cost to build new facilities. This factor is clearly influencing rental rates across the globe.

SC
MR