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Growth in online retail shifts demand to urban logistics

Global Market Perspective, February 2020

Global logistics markets continued to see robust albeit slowing demand in 2019, fuelled by further e-commerce growth and efforts by traditional retailers to shift towards omni-channel distribution models. Much of this new demand is concentrated on urban and last-mile delivery as companies race to get closer to the consumer, which is leading to greater densification, the renovation of brownfield sites and the construction of new types of facilities, such as multi-storey warehouses, in several markets.

2019 another strong year for U.S. industrial market

The U.S. industrial market closed out 2019 on a positive note with aggregate net absorption mirroring demand levels from the past few years, helping to offset rising delivery levels. The U.S. industrial vacancy rate increased marginally to 5.1% but remained near historic lows. Retailers are actively resetting their supply chains, often using 3PLs to quickly get into the game. This is reinforcing the urban logistics trends of last-mile delivery and being close to your consumer base. A stable market, coupled with new speculative projects commanding high rents, produced the strongest rental growth in three years of 6.3% for 2019, with nearly 75% of tracked markets seeing gains over the fourth quarter.

Demand still above trend in Europe despite softer activity

Following a relatively slow start to 2019, logistics take-up levels in Europe recovered in the following quarters and the market now appears to have reached a phase of stabilisation. Development activity across Europe remains at an all-time high, but a growing shortage of suitable land for new warehouse development, combined with difficulties securing planning permission in many markets, is likely to lead to less new space delivered in 2020. Annual prime rental growth across the European logistics market reached 2.4% in 2019, one of the highest growth rates of the past decade. Looking ahead, prime rental upward pressure across most European warehouse markets will be largely driven by shrinking land availability and continued occupier demand.

Occupier activity positive but slowing in most Asia Pacific markets

Occupier demand in Asia Pacific held up during 2019, albeit slowing from its previous brisk pace of growth. Rental growth stayed positive in Beijing and Shanghai during the final quarter, though the pace eased in Shanghai from prior quarters given the slowing demand environment. Hong Kong rents fell during the fourth quarter, while rents in Tokyo have risen modestly with ongoing increases in land prices and construction costs.