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.
Industrial sector continues to set the pace for rent and capital values
Global rent and capital values recorded continued growth in Q2 2017 across all property types, with the exception of retail rents, according to CBRE Research’s latest Global Rent and Capital Value Indices MarketView. The industrial sector continues to outperform other sectors, with industrial rents growing by 0.8% quarter-over-quarter and by 3.1% year-over-year in Q2 2017. Though the pace was uneven across regions, industrial capital values continued to grow faster than rents, with industrial capital values growing by 2% quarter-over-quarter and by 6.9% year-over-year.
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.
Urban areas around the world are evolving towards a more dynamic level of material transport as city logistics comes into play. Consumer demands are fueled by e-commerce and its ability to provide same-day delivery options at little-to-no expense to the consumer. This has become the single largest disrupter to the logistics industry, creating a supply chain arms race, completely changing the way we think about industrial real estate, and transforming the last-mile scheme. This isn’t a new phenomenon, and yet it isn’t a fleeting trend either. Companies are now using industrial real estate as a strategic differentiator, which has led to strong market fundamentals in global hubs. In this report, we explore the last mile and city logistics on a global scale, looking at the implications to the physical supply chain and what it means for industrial owners and occupiers.
Investors continue to be drawn to prime logistics assets due to strong market fundamentals. Compared to other property sectors, prime logistics is an attractive asset class for capital, providing a higher initial return on investment—nearly 6.0%, compared to 4.5% for office and 4.0% for retail. Key takeaways from this report:
Global prime logistics yields continued to decline in the second half of 2016.
EMEA had largest Y-o-Y decline in prime logistics yields.
The Americas had the lowest average prime yield, at 5.84% as of Q3 2016.
E-commerce and a transformation in the physical supply chain is driving growth in China.
Growth in investment activity is expected to continue, but investors may proceed with caution in 2017.
China is going through a robot revolution, prompted by demand for automation in its manufacturing sector. Key takeaways from this ViewPoint:
In China, the use of robots is rising. In 2015, manufacturers purchased 67,000 industrial robots, a number expected to more than double by 2018.
Technological advancement has lowered the cost of robot parts significantly—some cost 88% less than they did in 2006—giving manufacturers incentive to invest in this technology as worker wages rise and the labor force ages.
A rapidly changing global supply chain is driving the trend towards industrial automation—primarily e-commerce and the need to deliver products to the end user more quickly.
Manufacturers in China are responding to the rapid development of automated technology, using it to remain competitive as the labor force in their modernizing economy changes.
Industrial real estate is poised for significant change, with the rapid rise of automated technologies and 3D printing significantly disrupting the global supply chain. Although many of their expected effects are far from being realized, all indications point to the full eventual implementation of these technologies, and it is imperative that I&L owners and occupiers start preparing for the shift today.