Global prime logistics rents continue to rise, says CBRE
The second Global Industrial & Logistics Prime Rents report issued last week by industrial real estate firm CBRE provided a positive, and ongoing, outlook for logistics rents. One of the report’s chief findings was the prime logistics rents in 70 major global markets rose by an average of 2.2% annually during the first quarter of 2017, which the firm said continues a run a “several quarters of growth.”
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The second Global Industrial & Logistics Prime Rents report issued last week by industrial real estate firm CBRE provided a positive, and ongoing, outlook for logistics rents.
One of the report’s chief findings was the prime logistics rents in 70 major global markets rose by an average of 2.2% annually during the first quarter of 2017, which the firm said continues a run a “several quarters of growth.” CBRE defines prime logistics rents as the “highest achievable rent for industrial distribution space of the highest quality and specification, and in the best location within each industrial market.”
As for where the sharpest growth came from, the report stated it was from the Americas, with a heavy United States emphasis, as it explained that prime rents are low when compared to other regions in tandem with heavy demand for distribution space as the large scale build out of e-commerce fulfillment networks continues. CBRE said that five of the top ten largest rent increases in prime markets were in the U.S., including Seattle up 19.6%, Pennsylvania’s Lehigh Valley up 10%, and Oakland up 9.3%. And Oakland and Los Angeles/Orange County were among the top 10 for most expensive markets, at $8.73 and $8.52, respectively.
Looking at global markets, CBRE said that land-constrained markets like those in Asia (six of the top ten most expensive markets were in the Asia-Pacific region) were among the priciest prime logistics rents, with Hong Kong at the top at $32.40 per square foot, followed by Tokyo at $18.22, and then London at $17.86.
But from a regional rental perspective, CBRE said that growth in the Americas was up the most at 3.8%, with Asia-Pacific next at 1.4%, and Europe, Middle East and Africa (EMEA) up 1.2%.
“Probably the biggest takeaway of this report is that there is more growth in the marketplace,” said David Egan, CBRE Global Head of Industrial & Logistics Research, in an interview. “One of the big questions for the market, specifically the U.S. and globally, is ‘what is the deal with this cycle and how much longer can it continue?’ and this report underscores the idea that there is growth all over the world. Maybe there is not the growth there was in previous quarters, but what is happening is good, solid, steady growth in all the major markets of the world, and some really big growth in a few of those. It is nothing new in this cycle in that it is a supply and demand story, and also a supply chain story, and an e-commerce story.”
Egan added that it also speaks to the general health of the economy, with the report essentially serving as a significant set of data points that tells the story being supported by the report’s figures.
In terms of when this current cycle commenced, Egan said it started around mid-2010, which is when positive demand returned to the marketplace and stayed. As for its staying power, he declined to put a specific date or timeframe on it, but he said over the near- and mid-term there is reason to believe demand will remain steady.
“Supply is picking up so the massive gape between supply and demand is narrowing but there is still a gap a lot of competition for the prime space cited in this report,” he said. “But that competition is going to lead to further rent growth for a while. It is very difficult to imagine we are going to have vacancies decline much more as they are already pretty low and it is hard to see them get much lower. “We are measuring the cycle through the lens of demand, and we see positive demand as a continuation of the cycle. I don’t see any reason to think that for the rest of this year and for a while beyond that we should see anything less than continued levels of net positive demand. There is still plenty of room to run [in this cycle].
Looking outside the U.S., Egan said the major Asian and Chinese port hubs are growing and will continue to grow for a while, noting that APAC has the most growth in the world, with the expectation it will continue.
“If you think about supply chain, it is really about manufacturing and moving goods to where they are going to be consumed,” said Egan. “In the Western economy there is a lot a manufacturing, but consumption is the key to it. China is really doing both in manufacturing and reshaping their economy to drive more consumption, which means a reshaped supply chain. They already have a large manufacturing base but they also have this rapidly growing consumption economy, which needs another supply chain to support it. The Chinese supply chain is really inside out, with it shipping to other parts of the world, even if it is slowing down a bit. But it is being more than offset by the outside in approach, which is taking stuff from where it is made and being brought in to the consumption points in China.”
About the AuthorJeff Berman, Group News Editor Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. Contact Jeff Berman
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