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Logistics Demand Isn’t Touched by Trade Wars—Yet
“Tariffs and trade sanctions are a negative for economies and a tax on consumers,” according to a new Prologis report. But does a trade war represent a rising tide that swamps all boats—specifically, logistics real estate? Not yet.
To date, Prologis reported, the threatened sanctions—whether from the Trump White House or from overseas governments in retaliation—have been small. As a result, thus far “logistics real estate remains insulated,” especially since this segment of the supply chain is consumption-oriented, rather than production-oriented.
“The tariffs announced thus far pose a concentrated risk at the production end of supply chains, potentially decreasing demand for goods or acting as prompts for manufacturers to cut costs,” Prologis stated. Production and consumption are at opposite ends of the chain from one another, though.
In terms of industrial space requirements, Prologis identified five stops along the way from manufacturing to consumers’ hands. They’re as follows:
– Raw goods distribution
– Order consolidation
– Import and national distribution centers
– Regional distribution centers
– Last-mile distribution centers
Looking specifically at its own global portfolio, Prologis noted that more than 75% of its U.S. customers are focused on city and regional distribution. “Much logistics real estate demand growth in the past decade is attributable to e-commerce, supply chain modernization and economic expansion,” according to the report. “By contrast, trade growth played a smaller role.”
Prologis’ Chinese portfolio, which represents less than 1% of the REIT’s NOI, is similarly focused on city and last-mile distribution. That limits the risk posed by current trade policies in that market.
Domestically and overseas, however, the cushioning that consumer-oriented industrial space currently enjoys may not last if the heated rhetoric turns into higher trade barriers. “Logistics real estate positioned at the consumption end of the supply chain… focuses on proximity to major population and consumption centers,” according to Prologis. “That said, slower economic growth due to escalated trade sanctions would negatively impact consumption and, in turn, demand for logistics real estate.”
For comments, questions or concerns, please contact Paul Bubny
- ◦Economy
- ◦Lease
