Global Logistics Rents Post 4% Gain

SAN FRANCISCO—Logistics rents rose by 4% globally in 2016, Prologis said Thursday. Not surprisingly, the strongest of the four regions measured in the latest Prologis Logistics Rent index was the US, where rents grew by 5% last year—with the major coastal markets averaging about 150 basis points above the average—and vacancies fell below 5% for the first time. However, the firm notes that Europe is gaining momentum and growth there could outpace the US in the next few years.

With 3% gains across Europe in '16, rental growth on the continent remains moderate compared to the US, “but is notably ahead of the low inflationary environment,” according to the Prologis report. “The unwinding of lease concessions has been the principal driver of the market rental recovery “across the continent, although there are some softer markets, notably the Paris metropolitan area.

“The operating environment for logistics real estate experienced a measured, albeit steady, improvement” in Europe over the past several years, the report states. “In turn, the market vacancy rate in Europe is below 6%, the lowest level on record.”

The story in Asia for '16 was one of moderating rent growth, “as the advancing supply cycle constrained growth in some markets,” according to the Prologis report. In Japan, market rents were flat last year, while development activity is near historic highs. Rent growth in China is led by Greater Shanghai, although Prologis notes that the pace has slowed as the market environment has normalized in recent years.

In Latin America, “rent growth was broadly soft on a nominal and inflation-adjusted basis” last year, according to Prologis. Mexico saw the strongest demand on record in '16; however, “uncertainty surrounding changes in trade policy with the United States has led to volatility in the value of the peso, which in turn has hampered market rental growth. In Brazil, rental rates are mostly flat.”

Across the 60 markets covered in the the Prologis index, market vacancies are “at or near historic low levels in most markets around the world and customer demand is healthy. In many of the leading markets, replacement costs are rising quickly and changing the development cost equation. In turn, rising replacement costs further support market rents.”

Putting aside the possibility of negative economic surprises, Prologis says, “scarcity of available space creates the potential for surprisingly strong rent growth as customers continue to compete for space. Development activity remains disciplined, particularly in the US, and balanced supply/demand should keep market vacancies low” throughout the year. However, the firm cautions that “submarket selection matters more than ever before” and performance has not been uniform, nor will it be.

SAN FRANCISCO—Logistics rents rose by 4% globally in 2016, Prologis said Thursday. Not surprisingly, the strongest of the four regions measured in the latest Prologis Logistics Rent index was the US, where rents grew by 5% last year—with the major coastal markets averaging about 150 basis points above the average—and vacancies fell below 5% for the first time. However, the firm notes that Europe is gaining momentum and growth there could outpace the US in the next few years.

With 3% gains across Europe in '16, rental growth on the continent remains moderate compared to the US, “but is notably ahead of the low inflationary environment,” according to the Prologis report. “The unwinding of lease concessions has been the principal driver of the market rental recovery “across the continent, although there are some softer markets, notably the Paris metropolitan area.

“The operating environment for logistics real estate experienced a measured, albeit steady, improvement” in Europe over the past several years, the report states. “In turn, the market vacancy rate in Europe is below 6%, the lowest level on record.”

The story in Asia for '16 was one of moderating rent growth, “as the advancing supply cycle constrained growth in some markets,” according to the Prologis report. In Japan, market rents were flat last year, while development activity is near historic highs. Rent growth in China is led by Greater Shanghai, although Prologis notes that the pace has slowed as the market environment has normalized in recent years.

In Latin America, “rent growth was broadly soft on a nominal and inflation-adjusted basis” last year, according to Prologis. Mexico saw the strongest demand on record in '16; however, “uncertainty surrounding changes in trade policy with the United States has led to volatility in the value of the peso, which in turn has hampered market rental growth. In Brazil, rental rates are mostly flat.”

Across the 60 markets covered in the the Prologis index, market vacancies are “at or near historic low levels in most markets around the world and customer demand is healthy. In many of the leading markets, replacement costs are rising quickly and changing the development cost equation. In turn, rising replacement costs further support market rents.”

Putting aside the possibility of negative economic surprises, Prologis says, “scarcity of available space creates the potential for surprisingly strong rent growth as customers continue to compete for space. Development activity remains disciplined, particularly in the US, and balanced supply/demand should keep market vacancies low” throughout the year. However, the firm cautions that “submarket selection matters more than ever before” and performance has not been uniform, nor will it be.