Regional Highlights
United States/Canada
Net effective rents increased by a record 17.6 percent in 2021. Gateway locations recorded the fastest rent growth, led by California’s Inland Empire at 58 percent. Markets near major consumption centers – where units are larger, more available and relatively less expensive – posted some of the fastest growth rates in 2021. We expect that strong demand will buoy rents in these markets, although an influx of new supply in outlying submarkets could slow the pace of growth in 2H 2022 or beyond.
Infill logistics space along the coasts recorded moderate growth in 2021 relative to pre-pandemic growth (which led the nation). We expect infill properties to post faster rent growth in 2022 amid dissipating pandemic-related uncertainty (hopefully!). With this would come the need for expanded e-commerce distribution networks.
Europe
Market rent growth accelerated to a record 7.2 percent in 2021. Despite a broad acceleration of pan-European demand, markets with lower regulatory and geographic barriers to new supply recorded negative rent growth, including Poland, Bratislava and Budapest. Replacement cost growth could shift this dynamic in 2022, as development margins are increasingly under pressure.
Markets with the strongest rent growth have very low vacancy and high barriers to new development. UK markets recorded the strongest rent growth in Europe with 13.1 percent. On the continent, rents grew only 4.8 percent in 2021 while replacement costs increased by double-digits. Looking ahead, we expect rent growth to accelerate and narrow this gap.
Asia
China
Rent growth recovered to 2.3 percent in 2021. Around half of the 21 main markets posted rent growth above their long-term average. China’s most affluent consumption centers, namely the Yangtze and Pearl River Delta regions, dominated this list. Here, vacancies remained low due to substantial demand and limited supply. Green shoots appeared in some markets that have struggled with oversupply, including Chengdu, parts of Shenyang, and parts of Nanjing. Rental declines continued in Wuhan, Tianjin and parts of West China.
Japan
Rents grew just under 1 percent in Japan in 2021. Demand kept up with record deliveries of nearly 40 MSF in the two main markets of Tokyo and Osaka. Vacancy rates remained low at 1.5 percent at year-end 2021 , albeit slightly higher than the prior year. Japan’s low inflationary environment generally keeps the pace of rent growth subdued; however, customers in some infill areas are willing to pay premiums to secure rare, well-located space.
Latin America
Mexico
Net effective rents grew 10.5 percent in the main Mexican markets during 2021, more than recovering the -1.9 percent drop from 2020. In 2021, e-commerce expansion supported demand in and near large metros while nearshoring activity boosted the border markets. On the supply side, rising replacement costs (up 20-30 percent during 2021 ) and a lack of viable sites for development drove rent growth as customers competed for few availabilities. We expect rents to continue growing at a robust pace as new supply lags demand in most markets.
Brazil
In Brazil, market rents increased by 11.0 percent in 2021 for the main Southeast markets (Sao Paolo and Rio de Janeiro). E-commerce expansion and flight-to-quality supported demand. Gross absorption reached a record high and supply has not kept pace, slashing vacancies in Sao Paolo. An increased cost of capital could constrain new supply. Combined with expectations for continued strong demand, vacancies could decrease further, driving up real rent growth.
ENDNOTES
1Prologis Research tracks rental rates on a net effective basis. Net effective rents are adjusted for free rent. By doing so, we can capture changes in true economic lease terms.
2The Prologis Rent Index was introduced in 2015 to quantify and analyze rental growth trends across the global logistics real estate sector.
3Prologis Research. Regional and global rental growth rates are weighted averages of market-level growth rates, using estimates of market revenue as weightings. Market revenue is based on data collected from Prologis Research, CBRE, C&W, JLL, Colliers, CBRE-EA, Gerald Eve, Fraunhofer.
4These categories are determined at the property level; aggregates are weighted by Prologis portfolio NOI unlike the rest of the document which is weighted against market NOI.
5U.S. data from CBRE, C&W, JLL, Colliers, CBRE-EA, Prologis Research; Europe data from CBRE, C&W, JLL, Colliers, Fraunhofer, Gerald Eve, Prologis Research.
6Source: Prologis Research, Federal Reserve Economic Data, Eurostat. Note: Year-over-year as of Dec 2021 in the U.S. and Nov 2021 in Europe. Price index based on basket of commodities needed to develop a logistics warehouse. Basket weights are 47.5% for concrete; 27.1% for structural steel, 17.0% for roofing and paving, and 8.5% for fire protection pipe.
7Prologis. Note: finished land values, based on Prologis land bank as of 31 Sept 2021 internally valued as of 31 Dec 2021 using development residual models on Q4 2021 market inputs.
8Prologis Research.
9These categories are determined at the property level; aggregates are weighted by Prologis portfolio NOI unlike the rest of the document which is weighted against market NOI.
10Investment Intentions Survey 2022 by INREV and Global Investor Outlook Report 2022 by Colliers.
11CBRE
12Prologis Research
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About Prologis Research
Prologis’ Research department studies fundamental and investment trends and Prologis’ customers’ needs to assist in identifying opportunities and avoiding risk across four continents. The team contributes to investment decisions and long-term strategic initiatives, in addition to publishing white papers and other research reports. Prologis publishes research on the market dynamics impacting Prologis’ customers’ businesses, including global supply chain issues and developments in the logistics and real estate industries. Prologis’ dedicated research team works collaboratively with all company departments to help guide Prologis’ market entry, expansion, acquisition and development strategies.
About Prologis
Prologis, Inc. is the global leader in logistics real estate with a focus on high-barrier, high-growth markets. As of December 31, 2021, the company owned or had investments in, on a wholly owned basis or through co-investment ventures, properties and development projects expected to total approximately 1.0 billion square feet (93 million square meters) in 19 countries. Prologis leases modern logistics facilities to a diverse base of approximately 5,800 customers principally across two major categories: business-to-business and retail/online fulfillment.
