Prologis Looks at Four Global Trends Impacting Logistics

Logistics giant Prologis has been looking at the forces affecting logistics real estate and points to four areas that will have the biggest impact.

First is a fall in volatility “because of the multiplier effect on demand and structural discipline in supply.” One is a “multiplier effect on demand.” More economic activity is now tied up in logistics. Each unit of growth now needs 20% more additional logistics then before the pandemic.

There are a few reasons. One is that suppliers, wholesalers, distributors, and retailers are trying to avoid supply chain disruption, and so there’s at least an additional 5% in inventory carry. There’s more product variety as vendors look to target customer segments more closely, so create more options, driving the need for more storage space. Changes in demographics will drive a higher share of consumption that goods represent, again meaning more space needed for storage and processing. Also, online sales continue to take a greater share of retail sales, and that requires three times the amount of logistics space as brick-and-mortar.

The next big factor is the collection of changes in retail that are driving demand. As mentioned before, e-commerce requires greater logistics support. “Around the world, delivery timelines are falling again as the ability to consistently deliver goods in one day or less produces a competitive advantage,” they wrote. Larger, decentralized distribution networks are necessary for fast delivery and reduced transportation costs.

Supply chain resilience needs are driving the look of logistics. Prologis describes it as a shift from just-in-time to just-in-case. Overly tight supply chains in the face of the pandemic helped set off significant inflationary pressure that put the economy into a lurch. “When the U.S. inventory to sales (I/S) ratio fell to 10% below pre-pandemic levels, we called for cumulative inventory growth of 15-20%, driving a surge of demand,” they wrote. “Subsequently, real inventories increased by 15% and both the I/S ratio and inflation-adjusted inventories per household recovered to 3% above pre-pandemic levels.6 From 2020 to 1H 2023, logistics real estate demand total 1.2 billion square feet or 330 MSF per year vs. historical expansionary average of 175 to 200 MSF in the top 30 U.S. markets, showcasing this incremental demand.” In short, there needs to be more duplicated facilities to manage greater diversification of sources.

And then there is an expected contraction of industry building deliveries — down an expected 35% or more in the U.S. and EU in 2024. With elevated replacement costs and lack of inexpensive money, a fall in deliveries will tighten demand and vacancy rates.