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Prologis: The Next 10 Years In Logistics Real Estate

Once the dowdy property type in commercial real estate, industrial has become a star in recent years as e-commerce changes what industrial space is used for and where it is developed. 

The demands of e-commerce retail are even fueling multistory industrial development, which would have been laughed at only a few years ago.

Demand for warehouse space will push rents up another 22% this year, Prologis reported.

The recent trends are only the beginning, according to a new report by Prologis"Innovation, Disruption and the Value of Time: The Next 10 Years in Logistics Real Estate." (As it happens, Prologis built the country's first ground-up multistory warehouse.)

Rents in the world’s leading infill industrial submarkets have nearly doubled in the last five years, and Prologis believes this outsized growth will continue.

Future industrial space will support what Prologis calls synchronized commerce, which involves retailers ramping up convenience, immediacy and product variety in response to millennial shopping habits and new technologies, such as augmented and virtual reality.

The future of supply chains will thus require greater efficiency, the report says, and that will be driven by technology. 

For example, investments in alternative fuel sources and autonomous vehicles should push transportation costs down over the long term for the logistics business. Similarly, automation/robotics investments will dramatically decrease labor expenditures. 

Given the current distribution of supply chain costs, these efficiency gains have significant implications, Prologis reports. Each 1% savings on transportation and labor equates to 15% to 20% of rent for logistics real estate.

These new efficiencies will create savings and margin that can flow to retailers, brands, consumers and logistics real estate.

Not all industrial real estate will benefit from these trends. Real estate that helps retailers execute synchronized commerce stands to see increased demand and rent growth. But the properties will have to be up to the job, the report says, as supply chains become more complex, emphasizing time to market and proximity to consumers.