Can Logistics Developers Keep Up With Demand? Investors Sure Hope So
Developers are dealing with absorption issues by exploring multi-story solutions.
Commercial real estate watchers are speculating whether the frenetic pace of the booming logistics sector can continue as developers struggle to keep up with ever-increasing demands and investors are hamstrung by a lack of available assets.
“It was such a phenomenal last year, although I don’t think it was entirely unexpected,” says Nick Jones, pan EMEA Logistics & Industrial investment director JLL in a recent post. “The pressure on the sector is really due to permanent structural change of supply chains and more goods coming through the consumer front door via e-commerce.”
Logistics comprised nearly a quarter of all global commercial real estate investment last year according to JLL, with prime yields compressing to 4.4%. Global demand is also at historic levels, with net absorption reaching as high as 183% in the Asia Pacific region. The sector continues to be attractive to investors thanks to net effective rents, absorption, consumption and the sector’s position as a hedge against inflation.
In the US, developers are dealing with absorption issues by exploring multi-story solutions. Rich Thompson, Global Leader of Supply Chain & Logistics Solutions at JLL, notes that particularly in dense urban areas, “a limited amount of industrial zoned land is driving a need for a whole new vertical building design…We’re seeing more and more opportunities emerge as land prices rise and as the need to be closer to consumers becomes ever more critical.”
Multi-story warehouses have been en vogue in Europe and APAC for some time, but are relatively new entrants to the US industrial market.
“We’re seeing a lack of available land in dense markets, the price of land has really accelerated,” Jeff Miller, Vice President, Industrial, Oxford Properties Group recently told Mariam Sobh, host of Avison Young’s Changing Places podcast. “And lease rates have followed suit. So finally, you know, it justifies building these in select markets.”
Oxford Properties is on track to deliver Canada’s first large-scale multilevel, a 700,000+ square foot two-story warehouse called Riverbend Business Park, in Vancouver, British Columbia. Miller predicts more multi-story developments will rise in dense and expensive markets like Vancouver, Seattle, and the boroughs of New York.