Prologis ended 2024 on a high note. The commercial real estate behemoth leased 61m sq ft of warehouse space in the fourth quarter, setting a new company record, and with a large chunk of the business signed in December.
The company’s report on last year’s market shows a reversal from the highs of the preceding years. Global logistics rents sank 5%, with a 7% drop in the US and Canada, while rents retreated 1% in Europe.
The report’s authors describe it as a market correction, after years of exceptional growth, noting that rates remained markedly elevated over those in 2019. They were up 59% in the US and 33% in Europe.
The impact was aggravated by new warehouse supply coming into the market in 2023 and 2024, reversing the momentum in vacancy rates.
Naturally, the slowdown varied from region to region: Mexico and Brazil were two areas that recorded increases in rents, Prologis noted.
In the US, there has also been a marked difference between warehouses located near international gateways that typically hold inventory for a while, such as the Inland Empire in the Los Angeles area, or Savannah and downstream facilities – distribution and fulfilment centres closer to consumer markets, with faster growth in the latter segment. Moreover, these facilities typically showed contraction in inventory levels, indicating rapid outflow, whereas inventory rose at upstream warehouses.
One likely reason for this is front-loading, which got its initial push from worries about a port shutdown along the eastern seaboard, and latterly fears of US tariffs on imports, notably from China.
In terms of verticals and commodities, the growth in e-commerce has been the most potent driver of demand for warehousing capacity. Amazon alone accounted for $2bn out of $9bn in warehousing projects under way in the US in December, led by a $500m facility taking shape in Niagara.
This was topped by a $640m undertaking by retailer Macy’s, which is building a 1.4m sq ft fulfilment centre in North Carolina. Retailers and wholesalers raised their share of the US warehousing investment market last year from 30% in 2023 to 38%.
The industrial sector is showing signs of better days, although this did not manifest itself in numbers until the new year, when the purchasing managers’ index in manufacturing broke into expansion after 25 out of 26 months of contraction.
Front-loading had an impact on the need for warehouse capacity, and a further impulse stems from moves by Chinese e-commerce firms Temu and Shein to establish distribution footprints in the US, a trend likely to gather momentum this year as the US authorities are taking steps to stem the flow of e-commerce parcels pouring into the country.
Over the past year, Temu has been adding US warehousing for products shipped domestically to offer narrower delivery windows, using capacity owned by WINIT and Easy Export, feeding them with inventory of popular items. And Shein has been using the same strategy for its QuickShip service to US consumers from facilities in North America.
Both Prologis and real estate giant CBRE have predicted a moderate recovery in warehousing demand this year, fuelled by consumer spend, moderate inflation, and productivity gains. They do not expect rents to rise until the latter half of the year.
The tightening of available capacity should be reinforced by the slower pace of new warehouse space entering the market. After pronounced increases in 2022 and 2023, construction starts fell by 30% last year
Tariffs could add further impetus to warehousing demand. Seko Logistics warned cargo owners to secure sufficient capacity.
“US warehouse space will become a premium – don’t wait until space is gone or disruptions escalate even further to secure what is necessary for your business needs,” it advised.
