Logistics rents grow in North America
Logistics rent in the US and Canada has grown with 3,2% in 2020 according to figures from real estate investment fund Prologis. That is remarkable as it transcends the global rent growth of 2,9%. After a mid-year dip due to the pandemic, growth recovered in the year-end of 2020. In North America especially outperformance in demand and rising replacement costs were responsible for the growth.
Healthy rent growth in North America
North America appeared to be one of the leading regions in rent growth in 2020. Replacement costs continued to rise and structural demand boosted pricing rapidly in certain markets. Most markets recovered quickly from the pandemic and vacancies remained low and stayed considerably healthy.
Nevertheless compared with 2019 rent growth decelerated from 8 till 3,2%. Reasons? Covid-19 and new supply. But logistics real estate demand remained positive most of the year. Even with 300 million square feet of new space structural shifts and overweight exposure could accommodate this growth.
Shift to upstream regions
There was a remarkable shift towards regions. For instance the East region, Toronto (Ca) and New Jersey/New York City. Rent grew strongly due to local trade and consumption factors and high barriers to supply. Other rent growth leaders in 2020: Pennsylvania, Dallas and Atlanta.
In some regions rent growth exceeded 5% due to a low vacancy rate. For instance Baltimore, Central Valley, Reno, Nashville and Louisville.
Replacement costs growth + rising barriers
Land costs in U.S. markets keep growing as a result of the competition for a limited number of high valued logistic spots. On the other hand regulatory barriers and community resistance is slowing down further development. Construction projects takes more time as they are being postponed or even cancelled. These trends reinforce the imbalance between demand and supply especially in infill areas and push rent to higher levels
Logistics trends in 2021
As the pandemic is more or less under control, 2021 appears to be a steady year for most markets so far. There’s a shift to more equity in the logistics real estate sector which could lead to areas of oversupply. Rent is expected to continue to rise due to intensifying replacement costs, structural rise in demands and the challenge to meet the demand.
More trends to appear in 2021?
o The acceleration of e-commerce will increase the need for space nearby the customer.
o Retailers will build in a buffer and higher inventory levels in order to comply with consumer demand.
o In the second half of 2021 cyclical demand is predicted as a result of economic recovery.
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