Ongoing robust demand for logistics space

Global Real Estate Perspective, May 2021

The global pandemic has acted as a trend accelerator, in particular by bringing forward growth in e-commerce demand. As the online shopping experience takes shape, levels of e-commerce penetration are expected to increase further and force traditional retailers to incorporate rapid replenishment operations to compete.

The influx of packages ordered through e-commerce will also push the need for new last-mile facilities. However, high land values and lack of available space, as well as zoning barriers, have created challenges for developers and tenants looking for space. To meet demand, the idea of converting retail to last-mile facilities is growing, with location outweighing design. In some markets, developers are building upward and pursuing costly redevelopment projects that yield higher rents.

Demand for cold storage facilities is also on the rise across all three regions. This reflects the increasing volume of items that need to be kept in cold storage, whether it is COVID-19 vaccines or food being distributed to restaurants, grocery stores or direct to consumers. The importance of the vaccine rollout has focused minds on the cold storage segment like never before, with this trend set to continue beyond the pandemic.

Future trends: Strategic planning of supply chains will need to consider resilience
  • Short-term: There are signs that e-commerce-related demand is becoming more strategic in focus as opposed to the immediate, short-term space requirements of last year, with occupiers and supply chain players keen to get a future-fit, strategic network in shape. In some markets, this will need to include urban logistics facilities for last-mile deliveries.
  • Long-term: The Suez Canal blockage in March highlighted the issue of supply chain risk and served as another reminder of the continued vulnerability of supply chains built around just-in-time delivery. Post-pandemic, attention will turn toward the long-term planning of supply chain networks with a focus on resilience. In order to prevent disruption to production and distribution arising from shortages in components/raw materials, companies are likely to hold higher inventory levels and stockpile closer to production sites.