Big Demand Forecast for Industrial, Logistics Space

1) Supply chain flexibility will require regionalization consisting of a network of smaller urban locations and large distribution centers to accommodate the growing trend towards same day fulfillment, which will likely benefit some of the better-positioned tier II markets. Outsourcing to third party logistics companies, 3PLs, can contribute capacity and expertise without significant fixed cost investments. However, companies need to strongly consider controlling their own real estate, with cost reduction and technology continuing to drive location decisions and design parameters.

2) Logistics will rely more on improvements in the productivity of capital, utilizing order management and distribution automation technologies. In some markets, labor shortages and costs are making these investments an urgent necessity.

3) The required investments in technology and real estate will continue to put pressure on margins across all industries, with companies seeking economies of scope and scale. Scale will be attained primarily through consolidation. Scope can be attained by vertical integration, which is expected to drive greater demand for space. Today's most advanced distribution facilities offer clearances of about 35 feet, energy-efficient lighting and green building materials.

The U.S. is facing a potential shortage of class A Industrial space. Functional obsolescence in premium markets is spurring more redevelopment and retrofitting of existing facilities, while Industrial real estate demand in the southeastern U.S. has been propelled by relatively more affordable land. Greater transportation efficiency has spurred the development of intermodal facilities that serve as transfer points as well as logistics hubs and reshoring is likely to gain traction as labor costs become more balanced globally.
 
In Europe, activity has been mixed, with transactions taking longer to conclude due to the cautious outlook of many occupiers. However, locations such as Moscow, Warsaw and Berlin have recently seen encouraging levels of activity. Cost-reduction strategies have put the spotlight on prime quality space which has continued to decline while secondary space is becoming increasingly obsolete. Although this has placed marginal pressure on rents in some areas, it has also given rise to the re-emergence of build-to-suit developments, particularly space that requires a high degree of automation and technology.
 
Brazil and China have become dominant players on the global scene due to strong economic growth coupled with rising incomes. The real estate landscape in Brazil shows tremendous potential with industrial demand at its peak on the Rio-Sao Paulo axis. However, challenges remain such as poor infrastructure and a scarcity of suitable sites. In key Chinese hubs such as Shanghai and Beijing, traditional manufacturing assets are increasingly being replaced by value-added, high-tech industrial space. With a growing scarcity of land, companies are likely to explore buying existing industrial properties and renovating or rebuilding them to meet new requirements and higher standards.
 
"Costs in China and the growing integration of intra-Asia trade channels supported by a budding middle class point towards more demand for industrial space across most regional hubs," according to Sigrid Zialcita, regional head of Asia Pacific research services for Cushman & Wakefield. In Shanghai, demand has once again exceeded supply leading to annual rental and capital-value growth of about 10% to12% over the last two to three years. With reasonable rents, abundant land supply and improving infrastructure, Hanoi in Vietnam and Manila in the Philippines present attractive options to large-scale manufacturers looking to relocate from other countries due to rising labor and operational costs.