Oct 18, 20213 min read

5 Forces Shaping The Future Of Logistics Real Estate

Now that we find ourselves in the final stretch of the year, we notice an uptick in interest and activity by businesses looking to secure additional real estate for their growing operations.

New leases, renewals, acquisitions, and new development announcements are now occurring at a quicker pace – where possible – given the all-time low availability of industrial properties for lease or for sale, as well as the scarcity of industrial land.

Despite this supply crunch, we still see developers bringing on board millions of square feet of new construction. The issue, therefore, lies in the fact that most of it is already spoken for well ahead of completion; leaving little to be released to the market. This insatiable appetite for space – and the companies behind it – is a key indicator of what lies ahead.

So, What’s in Store for Logistics Real Estate?

1.Bullish Outlook for Overall Logistics Demand

A survey of logistics-focused companies shows that corporate demand is expected to grow and surpass current needs over the next three years. Approximately 74% of respondents expect their needs to grow by over 5%, while 28% expect 20%+ growth.

2. Broad-Based Demand from Multiple Sectors

To no one's surprise, e-commerce is forecast to be a lead driver, with 71% of respondents expecting significant growth over the next three years. However, alternative sectors such as express and parcel delivery, third-party logistics, healthcare and life sciences, construction and materials, and food and beverage, are also expected to shape logistics real estate as they build out their distribution networks.

3. Scarce Supply of Land Constraining Demand

As a result of developers’ struggles to secure suitable development land and planning permits to construct new speculative buildings, leasing decisions by corporations are being delayed or put on hold. While this is a supply-side constraint, it is in turn affecting demand and hindering the expansion of businesses into and throughout key markets.

4. Labour and Material Shortages Delaying New Construction

As an extension to our previous point, supply chain challenges coupled with worker absenteeism and general labour shortages are delaying new developments and making them more costly to produce. This is incentivizing corporations to consider alternative solutions such as building in alternative or secondary markets, merging or acquiring competitors, or canceling mandates entirely.

5. Technology Transforming Design, Site Selection & Operations

Although current constraints have limited expansion options, businesses have been forced to innovate by leveraging existing resources. Technologies that allow for improved efficiencies and throughput of warehouses, as well as the improved speed and flexibility of supply chains, are buying businesses time as they explore their options. Warehouse management systems, Big Data, automation, robotics, and smart building design are all foundational elements which may allow for non-traditional solutions such as multi-storey warehousing and suburban site selection.

Summary

The logistics sector has been forced to adapt in real-time as global events compress forecasted growth from one or two decades into a matter of years. As other industries follow e-commerce's lead, we expect demand to push forward, albeit in an environment where much of the previously existing excess in supply has already been absorbed.

This new equilibrium will create challenges in securing the right industrial logistics space, and will bring about the needs for creative solutions to complete distribution networks and answer the needs for ‘last-mile’ capabilities.

On that note, if you would like our team to assist with your next lease or purchase, or for more market intel or off-market opportunities, please contact us directly.

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