Permanently Altered Industrial Sector Will Drive Demand For 4B SF: Prologis Report
The coronavirus pandemic has reshaped the global logistics market in fundamental ways, spurring its long-term growth, but also putting new stress on the system as consumers adopt online retail sales more quickly than they might have otherwise, according to a new report by industrial real estate giant Prologis.
That could lead to demand for 4B SF of new logistics stock.
The report, “Forever Altered: The Future of Logistics Real Estate Demand,” said perhaps the main driving force in change for the industrial sector will be the accelerated growth in e-commerce. Though the pandemic will end, that will remain as one of its prime legacies.
E-commerce penetration will continue to be robust post-pandemic for a number of reasons. One is that many consumers overcame barriers to e-commerce during the pandemic, and they aren’t going back, the report says.
Also, innovation and supply chain investments made during the pandemic will hone the competitiveness of online options for retailers. That will be especially the case for retail segments with low e-commerce penetration before the pandemic, such as grocery retailers and home improvement specialists, Prologis predicts.
“Consumer expectations have increased in a permanent way,” the report notes. “Prologis Research forecasts that global e-commerce penetration will rise by 150 basis points a year over the next five years. Physical retail will increasingly require rapid replenishment operations to compete.”
Growth in consumption-oriented uses will drive growth in logistics real estate, even as production-oriented uses decrease, Prologis also found. Consumption is now the main driver of demand for logistics space on the global level, with retail sales having a higher correlation with logistics demand growth than more traditional uses of such space, such as manufacturing or wholesale trade.
These changes will naturally mean opportunity for industrial real estate owners and developers, but there will also be growth pains in logistics going forward.
“The resilience of the supply chain is being tested as companies expand globally, in turn driving the need for modern stock and decentralized networks,” the report notes. “Coupled with a rising consumer class, this worldwide upgrade should generate the need for 3 to 4B SF or more of modern logistics stock over the next cycle.”