Research extract

Barriers to logistics real estate supply are significant and rising. Over the next decade, completions are expected to fall short of demand in most locations within Europe. The  latest  Prologis  Research  identifies  significant geographic,  economic  and  political  barriers  to  new supply.

Notably land scarcity will be a key challenge, especially in the largest consumption centres like London and Paris and while replacement costs continue to trend upward- urbanization  is  driving  competition  among  real  estate providers. As of first quarter 2021 replacement costs in Europe have risen an estimated 8-10% year over year. Land  has  risen  around  10-15%,  and  in  core  Western European markets core land has risen between 50-100% in the last 12-18 months.

Permitting  and  entitlement  processes  have  already become  harder  and  are  more  expensive  and  time-consuming than ever. In Europe alone, Prologis Research has calculated that development lead times for projects in need of rezoning are roughly double that of projects already located in industrial zoned land.

Proprietary   data   also   points   toward   building requirements  and  costs  continuing  to  rise.  Concerns around  labour  remain  and  emphasize  the  need  for facility  improvements  that  focus  on  worker  wellbeing, such as the WELL standard.

Ahead

While  rising  value  in  well  located  and  well  designed buildings  will  justify  more  ‘creative’  real  estate solutions, the structural shifts in the logistics real estate development  industry  will  likely  continue  to  limit  the amount  of  new  supply  delivered  to  meet  the  future supply chain needs of customers.

With this in mind, scale development and the benefits which arise from it, innovation and the ability to advance sustainability goals will continue to be differentiators for logistics properties.

Prologis