Logistics real estate rents increased 17.6% in the U.S. and Canada during 2021, according to a Thursday report published by logistics real estate investment trust Prologis Inc. Globally, rents were 15.4% higher, with Europe seeing growth of just 7.2%.
“Bidding wars for space are increasing as available logistics space drops,” the Prologis (NYSE: PLD) report read. “As demand outstrips supply, vacancies are at record lows across the globe.” Vacancies fell 140 basis points during the year, ending at the all-time low of 3.4% even as 270 million square feet of space entered the market.
High levels of consumer spending and a surge in e-commerce fulfillment are pushing companies to store more inventory. The incremental stock levels are required as merchandise is being deployed closer to the consumer in efforts to reduce delivery times.
Rents are also being pushed higher due to inflation. A 50% increase in land prices and a 40% jump in construction costs sent acquisition prices and rents to record highs. A lack of construction workers, longer project lead times, and more tech and features on new facilities were contributors to the higher prices.
The top three markets for rent growth in 2021 were California’s Inland Empire (58%), Toronto and Reno, Nevada, according to the Prologis Logistics Rent Index. The dataset began in 2015 and follows changes in net effective market rents in major logistics real estate markets. Rents are net of concessions and based on estimates from the company’s data.
U.S. gateway markets, or those with access to multiple markets within a one-day transit by truck, recorded rent growth of 25.8% year-over-year in 2021 as “disruptions in the supply chain increased the importance of having control over inventories as soon as possible.” Rents in the categories like last-touch, city and multi-market were up between 11% and 14%.
Global rents are expected to increase by high single digits year-over-year during 2022.
“Pent-up demand — the side effect of robust consumption and the need for supply chains to accommodate higher e-commerce volumes and build resilient inventories — should keep vacancy rates at or near record lows even as deliveries pick up,” the report stated.
Prologis Ventures is an investor in FreightWaves.
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