Activity cools in the first quarter

The logistics sector cooled in many markets during the first quarter, with the U.S. and Europe posting declines in leasing activity as the effects of occupiers’ lengthier decision-making played out. Market fundamentals, though, remain strong overall. The sector is supported by low vacancy levels despite a healthy supply pipeline and relatively high completions in some markets. North America rather than U.S. in it, so it should be: Even with a modest uptick in vacancy rates as new deliveries came online, rental growth continued in Q1 with year-over-year increases of 21.7% in North America, 12.2% in Europe and 7.5% in Asia Pacific.

Looking ahead, demand is anticipated to continue to moderate as headwinds weigh further on the sector due to global economic conditions. As leasing demand softens, the rate of rental growth will slow but stay positive. Meanwhile, construction start activity is likely to constrict with the increasing cost of capital.

Future trends: Demand drivers remain intact

Short-term: Amid climbing interest rates and an uncertain global economic outlook, the slowdown in decision-making timelines will persist as users strategically weigh their options when executing deals. Record amounts of new supply, especially in the U.S., will be delivered by the end of the year. However, groundbreaking figures have slowed markedly which provides a more balanced landscape, especially in markets where there were concerns of oversupply. Vacancy rates are expected to increase moderately due to deliveries and lagging pre-leasing rates.

Long-term: Occupiers that are sensitive to supply chain delays will increase nearshoring operations to have better access to their end-users. E-commerce related demand has continued to rise past peak pandemic levels globally and this will drive additional demand for warehouse space, particularly in emerging Asia where e-commerce levels are still low. The development pipeline will slow as increases in the cost of capital and building materials hamper construction activity. Increased usage of electric vehicles will bring ESG and facility improvements like charging stations, rooftop solar panels and fleet parking to the fore.