Logistics real estate sees record rent growth

Rents for logistics facilities rose more than 15% worldwide and were up nearly 18% in North America last year, driven by high e-commerce volumes, the supply chain’s need to build more resilient inventories, and the rising cost of construction materials, according to recent data from logistics real estate giant Prologis.

The company released its Logistics Rent Index this month, which tracks trends in net effective market rental growth (which adjusts for free rent) in key logistics real estate markets in North America, Europe, Asia, and Latin America. The research tracked record rental growth for 2021 and predicts high single-digit growth this year as demand meets or outpaces supply. Among the global trends in 2021, according to the report:

• Bidding wars for space are increasing as available logistics space drops. As demand outstrips supply, vacancies are at record lows around the world.
• Record demand stems from a stronger economy and industry-specific factors, such as the rise of e-commerce. Also a factor: Retailers are boosting inventories to make sure consumers get their goods on time.
• Spiking construction costs and land prices produced record high replacement costs. Developers have had to increase rents to bring on much-needed supply.

Similar trends occurred in North America, where the highest growth rates were seen in regions near major ports of entry and where it’s easy to reach multiple markets: California’s Inland Empire, Toronto, and Reno, Nev., led the way, with rents in the Inland Empire rising 58%.

A 40% rise in construction materials costs in 2021 contributed to the spike, as did rising land costs, according to the report.

Looking ahead, Prologis researchers said they expect rents will continue to rise this year due to pent-up demand.

“High consumption and the need for supply chains to accommodate e-commerce volumes and build resilient inventories should keep [vacancy] rates at record lows even as more warehouses are completed,” according to the report.