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Logistics market remains resilient, with robust demand

Global Real Estate Perspective, November 2020

Occupier demand for logistics space has bounced back very strongly, hitting record or near-record levels in several major global markets during Q3 and making up for lost ground from earlier in the year. Europe, for example, saw its highest quarterly leasing volume ever recorded. Despite the reopening of many physical stores, e-commerce continues to be a strong driver of demand for logistics space globally – in the U.S., e-commerce accounted for 17% of total leasing this quarter while 40% of the floorspace transacted in the UK in Q3 was directly attributable to online retail.

Source: JLL, 2020

Construction activity has resumed after a hiatus in the first half of the year, with the U.S. in particular seeing a record spike in deliveries in the third quarter. Strong demand in the market has been able to absorb this new supply with the global vacancy rate maintained at around 8% and supply remaining tight in a number of markets, particularly in major metro areas where the boom in e-commerce has accelerated the need for last-mile logistics facilities. On the back of tight availability and strong e-commerce-related demand, rents for quality space have, in general, held up well across the globe.

A longer-term perspective: Positive outlook for the logistics sector

The logistics sector continues to present strong fundamentals and is expected to be resilient moving forward. The rapid growth of e-commerce, the ongoing realignment of supply chains and the increasing requirement for last-mile warehouses is likely to continue to support robust demand over the longer term. We are beginning to see the conversion of some retail space into logistics facililities for last-mile services in denser urban areas. Demand for cold storage facilities is also forecast to increase, driven by essential sectors – food & beverages and life sciences.

Encouragingly, the need to decarbonize logistics from both a transport and buildings perspective is now becoming more widely recognized among corporate occupiers, investors and developers, and policymakers, which is leading to the wider adoption of more sustainable practices.

Building design is also becoming more human-centric. Features that developers are now considering include improved indoor air quality, staff shuttle services to public transport, fitness centers, walking trails, storefront windows (instead of dock doors to create a connection with outside), hydration stations and modern lighting and fan systems.