Activity squeezed by slowing economy

Activity in the logistics sector moderated further in North America and Europe during the third quarter, with longer decision-making as occupiers reassessed portfolios. Demand was more resilient in Asia Pacific as a wave of new supply boosted take-up above last year’s levels. Construction is at record levels in North America and Asia Pacific, but new groundbreakings are declining due to rising construction and financing costs. Rents continue to increase globally, although at slower rates than the peak levels seen over the last two years, climbing by 14.9% year-over-year in North America and by 10.8% in Europe and with several Asia Pacific markets registering further gains.

Future trends: Structural drivers intact despite softening fundamentals

Outlook for 2024: Leasing volumes are expected to continue compressing as occupiers weigh all viable options for their operations. With demand slowing, vacancy rates across all three global regions will rise, with the U.S. seeing a noticeable uptick due to deliveries slated for the duration of 2024. Rising geopolitical tensions, more protectionist industrial policies and the increasing cost of energy will encourage more onshoring and nearshoring of operations.

Long-term: Despite softening fundamentals, long-term drivers remain intact. The manufacturing, energy and utilities sectors are emerging as key areas for long-term leasing and development in some markets, driven by the growth of electric vehicle (EV) mega-sites. Regulatory pressure and company commitments are shifting demand towards more sustainable industrial environments across regions. Global e-commerce sales are projected by e-Marketer to surpass US$8 trillion dollars by 2027, accounting for 23% of all retails sales, which will push continued demand for 3PL space. The trend of nearshoring operations, as companies turn to 3PLs when they don't have a supply chain partner in place, will also sustain this demand. The regionalization of industrial users will be a key theme in the coming years, driven by factors such as geography, politics and demographics. Industrial hubs in Europe and North America are likely to benefit from the reorientation of supply chains by domestic producers locating closer to end consumers.