E-Commerce Spurs Rent Growth For Prime Logistics Properties Worldwide
Rental rates for prime logistics space are rising throughout the world, and in some markets, ballooning.
The bump in rates is being driven by strong national and regional economies, but especially by e-commerce as consumers demand faster service when ordering online, CBRE reports.
Prime logistics rents — rates for top-quality warehouse and distribution space — were up an average of 3.2% across the world during Q1 2018 compared with a year earlier, according to the report. The previous 12-month period, Q1 2017 compared with a year earlier, saw an increase of 2.2%.
"In the Americas, supply chain and e-commerce dynamics have fueled rent growth at different rates across the region," the report said. "The U.S. and Canada have led the way, with users aggressively leasing space in response to both persistent economic and structural shifts brought about by e-commerce."
In the Americas, prime rents were up 3.8% year over year as of Q1 2018, about the same as the year before. Demand continues to outpace supply, with net absorption 9.9% higher than deliveries in Q1 and 20M SF worth of space absorbed, CBRE reports.
E-commerce and omnichannel retailing are forcing every point in the retail supply chain to carry more inventory at more locations. That includes not just retailers but also manufacturers, suppliers and distributors. Last-mile delivery has been a key focus, with well-located properties in high demand.
That isn't expected to change, since the growth of e-commerce has been relentless for well over a decade. Just in the United States, internet-based sales totaled only about 3.5% of all retail sales in Q1 2008, according to the Census Bureau. As of Q1 2018, such sales accounted for 9.5% of the total.
"The charts are hard to ignore and generally speaking, it's a trend that is so favorable for industrial that it might just decouple industrial real estate from GDP growth," Pacific Industrial co-founder Dan Floriani said late last year.
Of the 71 industrial hubs around the world tracked by CBRE Research, 49 recorded an annual increase in prime rents, while only 11 experienced decreases and the other 11 were static.
Some U.S. markets enjoyed exceptionally robust rent acceleration. For example, Oakland and Seattle saw prime annual rent growth of 14% and 13.4%, respectively. Worldwide, only Vancouver and Beijing experienced faster rental growth compared with Q1 2017, up 29.1% and 19.8%, respectively.
The CBRE report is not, however, predicting an industrial market development bubble. Despite strong demand for space in major logistics hubs, developers are showing some discipline — though this is partly because finding good sites is difficult.
Development of new product has especially lagged in the United States, where completions have trailed demand overall for 28 of the last 30 quarters, CBRE reports. That might change as construction increases, with delivery levels now just below the peak of the previous cycle, which was before the 2008 recession.