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Huge and ongoing disruption to global supply chains

Global Market Perspective, May 2020

Lockdowns and ‘shelter-in-place’ advisories in most major economies continue to result in massive supply chain disruption and cause major logistical challenges for corporates and their third-party logistics contractors. Production is still suspended across huge swaths of industry. Global container flows have declined sharply and temporary health protocols are restricting some ship movements. Severe cuts in passenger flights are constraining global airfreight capacity (as half of total airfreight is carried in the bellies of passenger planes).

By contrast, in China industrial production is resuming. The Chinese government continues to ease lockdown restrictions, with many manufacturing and warehousing facilities beginning operations again, although at reduced capacity.

Across most major global markets, occupier demand for industrial and logistics space has fallen, although this has not been fully reflected in first quarter numbers, with net absorption in the U.S. down only 9% and gross take-up in Europe down 13% on the five-year first quarter average. Asia Pacific net absorption was 17%lower, with many occupiers adopting a holding pattern.

A longer-term perspective: strong fundamentals over the longer run

Supply chain risk mitigation and resilience will become a key focus for operators. Additionally, the pandemic will accelerate trends already in evidence across the sector, such as increased online penetration rates, expansion of online grocery, omni-channel retailing and the integration of technology into warehousing.

Industrial and logistics fundamentals were very strong prior to the COVID-19 crisis. Occupier demand had been exceptionally robust and vacancy rates were at near-record lows (in low single digits in the U.S. and Europe). The pandemic is highlighting the critical importance of supply chains and logistics real estate and the sector is well placed to respond to the post-COVID-19 recovery.