The logistics real estate market is experiencing a fast return to growth, driven by strong demand for space that is expected to continue, according to data from logistics real estate firm Prologis, released this week.
In their latest Industrial Business Indicator (IBI) report, researchers said the segment returned to strong growth in the third quarter following a volatile second quarter. Vacancy remained at a low rate of 5% and warehouse utilization returned to pre-pandemic levels, at 85%. The report also predicts 2020 rent growth of 2.5%.
Prologis surveyed its U.S. customer base to gauge warehousing activity levels nationwide.
Improving confidence and the industry’s ability to “coexist” with Covid-19 are helping to boost demand, as is accelerating e-commerce activity and the need for higher inventory levels throughout the supply chain, according to the report. As an example, both e-commerce-driven leasing and activity among third-party logistics services (3PL) providers remained above pre-pandemic levels in the third quarter, researchers said.
Melinda McLaughlin, head of Prologis’ U.S. research practice, emphasized those points in a presentation at this week’s Home Delivery World conference, which is being held online. She said competition for available space is heating up and noted that a shift in inventory levels could lead to a shortage of space in the coming year. The Prologis report notes that rebounding activity and a falling supply pipeline “could lead to a critical shortage of space in early 2021.”
Prologis’ Chief Customer Officer Mike Curless, who also spoke at the Home Delivery World event, added that construction of new warehousing space had slowed at the height of the pandemic and that there may be a shortage of “quality distribution space” in 2021. He said Prologis halted the construction of its 16 speculative building projects for 2020 in the second quarter, but has since resumed work on two-thirds of them. The firm continued work on the 32 build-to-suit projects it had going at the start of the pandemic, however.
Careful planning for logistics operations is the best strategy heading into 2021, they said.
“The contraction in the development pipeline means that available options for customers looking to expand could narrow quickly, particularly in locations with high barriers to new supply,” the researchers wrote. “Perhaps, more than ever, planning well in advance for logistics needs could become a source of competitive advantage.”