Easing of disruption to global supply chains

Global Real Estate Perspective, August 2020

The resumption of industrial production following the gradual lifting of lockdown restrictions helped to ease the supply chain disruption and logistical challenges seen in H1. Occupier demand across all three regions saw a general softening in Q2, reflecting restrictions on property viewings and a wait-and-see approach from some occupiers. However, markets have proved quite resilient overall, with the slowdown moderated by robust leasing activity linked to specific growth areas, such as medical supplies, grocery and online sales.

Source: JLL, 2020

On the supply side, while new additions have slowed as pipelines have faced disruptions, the sector’s solid fundamentals and future demand projections have seen developers quickly re-start construction projects. And while the global vacancy rate saw an uptick to 8.2% in Q2, supply remains tight in many markets.

Industrial rents were flat in the U.S. and Europe during the second quarter. Meanwhile in Asia Pacific rental growth turned slightly negative predominantly driven by a significant fall in rents in Hong Kong amidst relatively weak economic fundamentals.

A longer-term perspective: Reset in global supply chains

The pandemic’s effect on the market remains in flux, as the length and severity of its impact on the global economy have yet to be determined. However, the logistics sector continues to present strong fundamentals and is expected to be resilient moving forward. Growing demand from the e-commerce and grocery industries is anticipated, along with that from critical suppliers such as medical devices, products and pharmaceuticals.

At first, the surge in demand caused by the increased adoption of e-commerce overwhelmed the supply chain. As a result, many companies will be re-evaluating their supply and stocking operations, leading to higher demand for manufacturing and last-mile facilities. Additionally, the pandemic has provided insight into the benefits of diversifying importing operations and reshoring. Looking forward, it is likely there will be a reset in global supply chains leading to a redesign of many distribution networks to diversify sourcing and bring supply sources closer to markets of final consumption.