Location strategy will become increasingly important to the performance of logistics real estate in 2017. Logistics real estate demand has outperformed economic growth by a sizable margin during the past four years, aided by structural shifts such as the growth of e-commerce. At the same time, development activity has lagged, allowing for strong rent growth across most markets.
Looking to 2017, we believe that the full recovery of rents could lead to increasingly meaningful differences in the amount of supply coming online by geography. Rising interest rates will add to development hurdles, especially for non-institutional players. Concurrently, the demand-side of the equation should remain fairly constant, given that e-commerce is here to stay and that market leaders view supply chains as a competitive advantage rather than a necessary cost.
Looking across the US, the demand-supply balance should remain in landlord’s favor, propelling positive rent growth across markets. Yet we expect that properties in markets and submarkets with high barriers to supply will outperform this baseline.
The new US administration represents another source of potential change in the logistics real estate industry, but most policies targeted for early action in 2017 would either boost demand through economic growth or have a limited impact on our sector. That said, we will be awaiting further clarity on any trade-related measures, in particular.