Prologis is optimistic about the prospects for the logistics property market. In a just-published view of the market in the US, the logistics property developer has identified a number of drivers that it thinks will continue to support both prices and utilisation of logistics property.
Central to its view of the market is what it believes is the growing demand from e-retail. Here Prologis expects an “over 100 bps (basis points) growth in U.S. e-commerce share of goods sales in 2023 year-over-year, equal to more than 50 million square foot of demand”. It quotes numbers from the US Census that show that e-retail spending in the US is already well over 20% total retail spending. This, Prologis believes, will underpin demand for de-centralised logistics infrastructure.
On the supply side, Prologis asserts that the level of building in the US will decline by “35% or more” in 2024. This is due to uncertainty in the economy due to the “ongoing impact of the price of debt and changes in bank and regulator behaviour in the wake of the Silicon Valley Bank and Credit Suisse failures”.
Prologis also perceives that manufacturers and retailers are newly cautious in their approach to disruption on their supply chains and they are “evolving” their approach to inventory to reflect this. Again, citing US census data it states, “the shift from just-in-time to just-in-case is on-going and will be reflected in future demand” with inventory-to-sales ratios having climbed markedly in the face of concern over issues such as disruption in ports. However, looking at the data cited by Prologis, these moves do seem to be short-term reactions to specific uncertainties, rather than longer term policy changes.
The consequence of these trends is that Prologis sees vacancy rates in logistics property falling further and that for “users of mission-critical logistics facilities, structural shifts in demand, like evolving consumer preferences and the need for supply chain flexibility in an increasingly uncertain world, are more likely to be met with chronic undersupply and higher barriers to new development in the future.”
Author: Thomas Cullen
Source: Ti Insights
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