Logistics Rent Index signals continued growth in U.S. West Coast: Prologis

San Francisco-based Prologis released its third annual Logistics Rent Index recently, drawing on data from Prologis’ global portfolio and examines rental growth in critical logistics real estate markets throughout the world.

Researchers say the report represents “a year of accelerated growth.”

Amoung the Rent Index highlights.

• Rental rates are continuing to rise at a faster pace: rental rates for global logistics real estate rose 6.6% - an acceleration from 4% growth in 2016. 
• The top rental growth markets were New Jersey-New York City, Seattle and Mexico City
• U.S. is leading market rent growth: Rents rose 9% in the U.S. in 2017 and it remains the fastest-growing region.
• Historic low vacancy rates: Healthy demand and disciplined supply due to lack of land and labor is leading to competition among customers
• Quality over quantity: Customers are more willing to pay for premier locations, prioritizing fast and reliable delivery to consumers.

Chris Caton, Prologis’ Head of Research, told LM in an interview that E-commerce is 20% of new leasing and has been about at that level for a while.

“Their growth is increasingly focused on infill last touch facilities,” he says. “Consumer expectations for delivery times and service levels are a catalyst.”

According to Caton, a broader range of customers are adapting their supply chains to meet these expectations, driving demand.

“In part because of this trend, some of the biggest occupancy and rental rate gains has been in the most infill assets and submarkets,” he adds.

Meanwhile, rent growth in the West is outpacing other regions. Seven of the ten top-performing markets are in the West. In 2017, market-wide net effective rent growth ranged from nearly 8% in Denver to more than 15% in Seattle. High barriers to new supply, access to key global trade gateways and healthy economic growth support outperformance in these markets.