Edito et opinion

Vacancy remains tight despite record high supply pipelines

Global Real Estate Perspective August 2022

In Q2 demand for logistics and industrial space slowed year-over-year across all three regions. However, activity was hampered by a lack of available supply in many markets and Q2 2021 leasing volumes were very high. Demand this year has become more broad-based with supply chain restructuring increasing demand from Logistics & Distribution and 3PL operators. Vacancy remained broadly stable across the regions, and in the case of both the U.S. and Europe is at all-time lows.

Persistent demand in the market continues to enable construction activity and the pipeline to climb to new levels. For example, a record high of over 100 million square feet was delivered in the U.S. in Q2. Despite new deliveries and construction pipelines being at or near all-time highs, there are multiple markets in each region where vacancy rates are around 2% or under. Given these supply and demand dynamics, all three regions recorded robust rental growth in the second quarter.

This article is part of JLL’s Global Real Estate Perspective

Future trends: E-commerce demand to slow but remain a key growth driver

Short-term: With reshoring picking up and surplus stock levels rising, demand for space from manufacturers and 3PLs is expected to increase. Meanwhile, high inflation will subdue consumer spending through the end of the year which will delay expansion plans for online retailers, with grocery likely to be the only online sector that will continue to expand in the short term.

Long-term: E-commerce related demand may have abated from its peak last year but will remain a key long-term driver for warehouse space (particularly in emerging Asia where the e-commerce story still has a long way to run). This will lead to increased demand for small-box, urban logistics facilities, including temperature-controlled warehouses. Increased commitment and usage of electric vehicles by e-commerce companies and last mile distributors will bring ESG and facility improvements like charging stations and fleet parking into the spotlight. 3PLs will be the beneficiaries of e-commerce growth as they capture distribution and supply chain-related operations.