Prologis Research monitors, analyzes and reports on key trends and dynamics in both real estate and supply-chain management, giving customers the benefit of insight from global and large-scale perspective.
The company’s dedicated team conducts its own primary research, drawing from industry data and consulting a network of affiliated academics and other professionals. Papers, studies and reports produced prior to the merger of AMB Property Corporation and ProLogis in June 2011 represent the expertise and perspective of both legacy companies.
Market fundamentals in the logistics real estate sector strengthened further in the fourth quarter of 2016. Market vacancies have fallen to record lows while demand continues to outpace supply. Net absorption closed out the year at 256 million square feet, the fourth consecutive year of demand above 250 million square feet, extending the cyclical high.
Demand for logistics real estate is increasingly global and broad-based, the result of which has been a remarkable period of strength in recent years. This has occurred in spite of modest economic growth overall. The changing nature of consumption is the primary underpinning of this outperformance and the most prominent force shaping future demand.
Logistics real estate users once again absorbed space at a faster pace than expected, outpacing new deliveries and sending the vacancy rate to a new all-time low in the third quarter of 2016. In addition to more rapid growth in select sectors of the economy such as autos and new home construction, the shift of consumption activity to e-commerce channels is the main driver behind this demand outperformance, which is occurring even as economic growth is poised for one of its slowest years since the 2009 recession.
The rise of e-commerce dominates retail headlines—however, what is its impact on logistics real estate? To address this and other questions, we analyzed the industry’s growth, examined fulfilment strategies and studied e-commerce customers’ latest leasing trends.
Demand for logistics real estate continues to outpace economic growth, with net absorption in the first half of 2016 marking the strongest start to the year since 2000. Net absorption totaled 125 million square feet during this time, in spite of mixed economic indicators and financial market volatility. With the IBI and some economic indicators firming in June, the outlook for cyclical demand is positive. Additionally structural trends such as expanding e-fulfillment needs should continue to augment demand. At the same time, development activity, while increasing, appears poised to lag demand through the near term.
Logistics real estate occupiers further expanded their footprints through the first quarter of 2016 despite recent volatility in the financial markets and the global economy. The latest reading from Prologis’ proprietary index of customer activity, the U.S. Industrial Business Indicator™ (IBI), reveals healthy growth and an elevated utilization of space. Net absorption reached 60 million square feet in the first quarter of 2016. Up 18 percent year-over-year, this above-trend level of absorption illustrates the outperformance of industrial demand relative to economic drivers.
Prologis is introducing a new Logistics Rent Index, which examines trends in net effective rents globally and in four major regions including in the U.S. and Europe. Data for the Prologis Logistics Rent Index comes both from our global portfolio, which amounts to 669M square feet in which we lease more than 150M square feet annually, and our local knowledge of pricing in the more than 100 markets in which we operate.
Amid highly fluid market conditions, the most recent indicators for the logistics real estate markets illustrate stability. On a forward-looking basis, logistics real estate customers remain in growth mode. Results from Prologis’ proprietary survey of customer activity, the U.S. Industrial Business Indicator™ (IBI), remain in the high-50s, a level consistent with normal growth for the industry.
E-commerce is booming, logistics hot spots are shifting and global supply chains are being restructured. So how are decision-makers responding? In our most recent survey, Prologis Research and EFT polled logistics industry participants in Europe to see how new real estate footprints are being developed. The survey, which was first conducted in 2013 and then repeated over the past few months, revealed the most important factors driving location selection, as well as the current European logistics hotspots.
Prologis Research details the trends affecting commercial real estate development in the U.S. Development activity is rising, but more slowly than during past cycles. Building on an improved macroeconomic climate, the recovery of occupancies and rents has invited development across all sectors, not just industrial. Yet, this cyclical upturn obscures important structural shifts. These shifts revolve around the mindset of greater discipline.
Logistics real estate market conditions are supported by robust customer activity and elevated utilization of space, as evidenced by the U.S. Industrial Business Indicator™ (IBI), Prologis’ proprietary index of customer activity. The index was in the growth range through October 2015, for the 37th consecutive month. Based on positive demand sentiment, Prologis expects net absorption of 240 million square feet in 2015, with projected deliveries of 160 million square feet. This imbalance between demand and supply should push the vacancy rate down to 5.8% by year-end, leading to a shortage of desirable space in most markets and giving landlords the leverage to further raise rents.
As e-commerce grows and evolves, so too will the supply chains, facilities and talent that support the critical functions of e-fulfilment. E-fufilment is essential to meeting consumer expectations, staying competitive and generating profit.