Structural demand drivers including e-commerce and the restructuring of supply chains continue to support global logistics markets, with elevated take-up holding vacancy rates near record lows. Leasing momentum is expected to remain strong, albeit decelerating from recent record levels, which should continue to propel rents higher for the rest of 2019.
During the second quarter, the U.S. industrial market maintained its momentum as the vacancy rate held steady at 5%, hovering near a record low. Although new completions slightly exceeded net absorption, demand remains solid. Rents continue to increase amid a tight market, but growth is slowing. We expect leasing momentum to remain robust going forward which should drive rents even higher. For now, 2019 is forecast to be another positive year for the logistics real estate market, even if the rate of growth decelerates somewhat.
Despite some quarterly variances, occupational demand for logistics space across Europe has been on a broadly rising trajectory since 2013. However, in Q1 2019 the level of take-up recorded was 28% down on the previous quarter and 15% lower than the same quarter in 2018 - but it is not clear at this stage whether this is a one-off or the start of a general slowdown in demand. While some deceleration in demand should not be a surprise given the moderation in economic growth across many of Europe’s major economies, structural drivers remain strongly supportive of warehouse demand including e-commerce.
On the supply side, the aggregate logistics vacancy rate for Europe is still at an historically low level, at circa 4.5%, which reflects both robust take-up and relatively limited speculative development over recent years. Most new warehouse space completed over recent years has been built-to-suit rather than speculative development.
In Asia Pacific, leasing demand is still solid despite trade tensions, contributing to generally modest rental growth across the region. In Beijing, both manufacturers and 3PL players have continued to increase their footprints, while leasing demand appears to be relatively healthy in Hong Kong’s prime warehouse market. Most major markets including Beijing, Shanghai, Hong Kong and Tokyo saw rental growth in Q2.
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