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Logistics sector demonstrates resilience

Global Real Estate Perspective November 2022

The logistics sector continues to demonstrate its resilience with healthy levels of demand and strong fundamentals. Nevertheless, there are signs that occupiers are adopting a more cautious approach amid economic headwinds. The U.S. remains most resilient with leasing activity holding up in Q3, while limited supply in primary markets and softening demand in China were drags on performance in Europe and Asia Pacific respectively.

Vacancy continued to tighten in the U.S. and Europe with record low vacancy rates in both regions, but aggregate vacancy ticked up in Asia Pacific. Rents continued to rise in all three regions in Q3, with the U.S. and Europe witnessing double-digit rental growth. Globally, rents increased 14% year-over-year. Rents, however, account for a relatively small proportion of supply chain costs, and there is currently greater occupier focus on operating costs, given concerns over the rising cost of energy and fuel. With energy efficiency offering significant cost-saving potential, this should drive demand for sustainable new warehouses as well as increased emphasis on retrofitting existing facilities.

This article is part of JLL’s Global Real Estate Perspective

Future trends: E-commerce demand to remain a key growth driver

Outlook for 2023: With the regionalization of manufacturing picking up and inventory levels rising, demand for space from manufacturers, retailers and 3PLs are expected to increase. Meanwhile, high inflation will subdue consumer spending into 2023, which will delay expansion plans for online retailers, with grocery likely to be the only online sector that will continue to expand in the short term.

Long-term: E-commerce-related demand may have abated from its peak last year, but it will remain a key long-term driver for warehouse space (particularly in emerging Asia where the e-commerce story still has a long way to run). This will lead to increased demand for small-box, urban logistics facilities, including temperature-controlled warehouses. Increased usage of electric vehicles will bring ESG and facility improvements like charging stations and fleet parking into the spotlight. Another long-term trend that will shape the future of global logistics is the increased focus on regionalization of manufacturing. The significant demand by consumers and governments for the electrification of automotive fleets, coupled with post-Covid supply chain issues and geopolitical uncertainty, has driven the need to regionalize advanced manufacturing.