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Record demand for logistics space as e-commerce surges

Global Real Estate Perspective, February 2021

While the logistics sector was not immune to the turbulence of 2020, occupational demand for logistics space has remained remarkably resilient, with all three regions (Asia Pacific, Europe and the U.S.) seeing record levels of demand in 2020. While a variety of factors have fuelled logistics demand, the primary driver in many markets is e-commerce, which saw a surge in growth in 2020 in large part due to the widespread restrictions placed on physical retail stores, with those being classified as non-essential forced to shut for extended periods in many countries.

Disruptions caused by lockdown measures have generally impacted construction timelines. In Asia Pacific this has helped maintain a steady balance between supply and demand, with vacancy and rents remaining fairly resilient. Vacancy and rents have also held up well in the U.S., which saw record levels of completions in 2020, demonstrating the robust demand for logistics space. In Europe, relatively modest levels of speculative development have meant that the aggregate vacancy rate remains at a sub-5% level, with moderate rental growth over the year on average.

Supply chain disruptions resulting from lockdown measures proved a real-time stress test for supply networks, particularly those based around just-in-time inventory. In the short term, the rollout of vaccines is likely to increase pressures on some supply chain infrastructure. This will focus yet more attention on creating resilient supply chains, which is likely to lead to further demand for warehouse space.

Future trends: Increased demand for last-mile facilities
  • Short-term: With many markets starting the new year under renewed lockdown conditions and widespread restrictions on physical retail stores, momentum behind the long-term trend of rising e-commerce adoption and related demand for warehouse space will continue to drive the performance of the logistics sector in 2021.
  • Long-term: Over the next several years, increased requirements for last-mile facilities are anticipated to keep up with online shopping demand. In addition, supply chains will be reassessed with more attention on creating resilient supply chains (for example, through the re-shoring of manufacturing) and, linked to this, an increased focus on sustainability and carbon-neutral supply chains.