Logistics real estate will remain strong in 2019. Over the last several years, industry growth has been far higher than the overall economic expansion, as cyclical and structural trends have coalesced.
With the rise of e-commerce, supply chains are increasingly seen as integral to success. And, while development volumes are not excessive, they have recovered to normal levels. Rapidly rising costs (today’s buildings are more expensive than ever) have tempered development. Notably, costs in development markets in central and eastern Europe and northern Europe are spiking.
In addition, access to suitable, well-located land is now hard to find. Taken together, vacancy rates have fallen to historic low levels (in the mid-4 percent range). Logistics customers who can move quickly to lock down the best real estate in the best locations have a better chance of staying ahead of the competition. Moreover, demand for available space has pushed rents higher and at a record pace — averaging in the high-single digits.
Several trends are poised to become more acute in 2019. For one, expectations for ever-faster e-commerce deliveries continue to rise even as retailers scramble to meet escalating consumer demands for speed and variety. Interestingly, Prologis Research notes a dichotomy within supply chains: Even as businesses recognize the need for speed, it is now harder than ever to execute. Why? Cities are bigger than ever, and congestion is at record levels. Consequently, the business case for infill real estate has grown.
Forward-thinking logistics users understand that logistics real estate rents comprise only about 5 percent of total supply chain costs. New business capabilities, as well as greater profitability, can be unlocked by prioritizing better-located and higher-quality facilities — even if they are more expensive or more challenging to secure.