E-commerce growth and demand for last-mile logistics, combined with an abundance of institutional capital in the global market, is driving increased investment in the industrial sector, according to CBRE Research’s latest report, Global Industrial & Logistics Prime Yields. Strong interest in prime logistics assets continues in most industrial hubs around the world, with $85.8 billion in total investment volume in the first three quarters of 2017—an increase of 12% year-over-year. This has led to widespread yield compression, with 72% of the global markets tracked by CBRE recording a decrease in prime yields since Q3 2016. The logistics sector is poised for continued growth amid rapid e-commerce expansion and positive market fundamentals across all regions. This will continue to drive global demand and investment in the sector in 2018.
The advancement of technology around the globe can be seen in all property sectors; however, it is perhaps most evident in industrial and logistics real estate. Not only is the physical space impacted by the proliferation of robots and automated systems, but supply chains will continue to be transformed by the rapidly evolving self-driving vehicles, production analytics and artificial intelligence. In our previous report on the megatrends presented at the Power of Three conference, we discussed the importance of demographic shifts and how the labor component will be affected within the logistics space vis-à-vis automation.
Here in our final installment we focus on the technology piece and how it is transforming industrial real estate and its surrounding supply chain networks, with respect to autonomous vehicles, robotics and artificial intelligence
Where will manufacturing take place in 2025? This is a critical question for occupiers and investors making location decisions about industrial and logistics facilities. The Future of Global Manufacturing report, produced jointly by CBRE Research and Oxford Economics, considers where the main locations for global manufacturing will be by the year 2025, and what this will mean for industrial and logistics real estate.
Five of the 10 fastest-growing manufacturing hubs are in Asia Pacific, according to the report. Light manufacturing will grow fastest in the new “Asian tigers” of Indonesia, Malaysia, Vietnam and the Philippines, due in large part to their significantly lower manufacturing wages compared to China. Meanwhile, precision engineering is likely to continue to flourish in the developed world (particularly the U.S., but also Western Europe) but without translating into significant numbers of new jobs due to increasing use of robotics and automation in this sector.
The global economy picked up speed in Q3 2017 with above-trend growth in Europe, the United States and Japan. Oxford Economics forecasts that global economic growth will accelerate to 3.6% in 2017 and 3.8% in 2018, from 3.2% in 2016. Global rent and capital values recorded further growth in Q3 2017 across all property types. Retail rents grew by 0.5% quarter over quarter after declining in the previous four quarters. Capital values continued to grow faster than rents, with the industrial sector advancing the most.
Since 2010, cross-border industrial real estate investment into the U.S. has reached nearly $61 billion, driven by the sector’s strong performance and the growing sophistication of logistics facilities, along with favorable investment conditions. Moreover, the industrial sector had the highest annual return (12.4%) in Q2 2017 of all property types—more than double the return for office and 5.5 percentage points higher than retail. According to our most recent CBRE Research Industrial & Logistics ViewPoint, logistics will continue to evolve, driven by changing consumer demands and e-commerce growth, and industrial real estate will remain an attractive asset class for foreign buyers. However, volumes will likely trend lower from their record level in 2015, given the dearth of large portfolios available for sale.
On June 20th 2017, 380 attendees from each region came together at the annual Power of Three Conference in Barcelona to discuss the most important global trends impacting the industrial real estate market today and in the future.
The three megatrends explored at the conference included: Globalization, Demographics, and Technology. These trends certainly aren’t new, however, they are more relevant than ever with respect to industrial real estate. Over the coming months CBRE Global Industrial & Logistics Research will explore these three megatrends and shed light on what it means for owners, developers, and occupiers of industrial real estate.
As part of our follow-up series on the Power of Three conference held in June 2017, we begin by exploring a megatrend that impacts everyone — Globalization. Although real estate is a localized industry, there are still larger geo-political and economic forces at play affecting the way goods are manufactured, traded and consumed all over the world, influencing decisions made by owners, occupiers and investors.
A poll from the Power of Three conference revealed that respondents placed this megatrend behind technology and demographics, perhaps because it is not as tangible. Many respondents questioned: what material impact does globalization have on industrial real estate, and what does the future hold for the logistics sector amid growing uncertainty in the global economy?
In the latest Global Industrial & Logistics Prime Rents report, CBRE Research outlines rents for prime logistics facilities in 70 global hubs in the Americas, Asia Pacific and EMEA, while also addressing how e-commerce is impacting the demand for space.
Continued Rent Growth Across the Globe
Prime logistics rents continue to trend upward across all regions.
Land-constrained global hubs command a premium for logistics space; though Americas markets more affordable.
U.S. coastal hubs continue to experience exceptional year-over-year growth; though in-land markets are coming into play.
Strong logistics demand continues in tier-one and coastal cities in China.
EMEA prime logistics rents are rising despite bifurcation in markets.
For the past five years, rapid change has taken place against a backdrop of weaker-than-normal economic growth; however, we believe it likely that growth will be stronger in 2017. The mild recession in the oil and commodities sector is over, unemployment continues to fall, and governments are starting to invest more in much-needed infrastructure upgrades.
All of the real estate sectors we review in this outlook for 2017 are in the process of reinventing themselves to accommodate technology-driven changes in business operations. Although the rate of change is rapid, it is the most exciting and interesting time to be involved in commercial real estate. In addition to macroeconomics and real estate coverage, our 2017 Global Real Estate Market Outlook has five key research themes:
In this CBRE Viewpoint we utilize the data from CBRE’s Millennials: Myths and Realities report on millennials to find out the preferences of 13,000 individuals aged 22-29 in 12 countries: Australia, Canada, China, France, Great Britain, Hong Kong, India, Japan, Mexico, Spain, USA East and West. We use the information about this key age demographic to describe the likely future of the retail industry both in physical stores and online, and how their preferences will influence the logistics market.