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National   /   February 5, 2021   /   By Paul Bubny

Logistics Rent Growth Powers Through the Pandemic

Pandemic uncertainty led to negative rent growth in most global logistics markets during the second quarter of 2020, Prologis reported. However, in contrast to many other property types, the sector rallied as the year went on and finished 2020 with year-over-year rent growth of 2.9% globally.

“The strength of logistics fundamentals was tested and proven in 2020 and underscored structural trends that the pandemic accelerated,” according to Prologis.

It’s important to note that 2.9% growth, while positive, represents a slowdown compared to recent years. Moreover, not all global regions fared equally well. While market rents held steady in Japan, they slipped in China on a Y-O-Y basis, and likewise in Latin America.

In the case of North American markets, the deceleration from 8% annual growth in 2019 to 3.2% in 2020 was both expected (due to rising supply levels) and not expected (due to a pandemic that nobody anticipated). “However, logistics real estate demand remained positive, prompting rental rate appreciation through most of the year,” Prologis says in its 2020 Prologis Logistics Rent Index.

All but one of the 10 markets that saw the fastest Y-O-Y rent growth in 2020 are in North America. Of those, eight are in the U.S., led by the Baltimore-Washington region at 11%.

The top 10 is rounded out by California’s Central Valley, Toronto, Reno, Nashville, New Jersey/New York City, Pennsylvania, Rio de Janeiro, Atlanta and Columbus.

“After a year of volatility, 2021 is expected to be a steady year of growth for most markets,” Prologis rays. “We note risks to the outlook, among them the ongoing pandemic and political and economic headwinds.”

The resilience of the logistics sector has attracted “significant equity,” according to Prologis. “In this atmosphere, we are monitoring how this wall of capital now targeting the sector could lead to areas of oversupply. Substantial structural demand tailwinds remain, replacement costs continue to rise and new supply is unlikely to meet this demand in most markets, in turn setting the tone for a year of strong rent growth.”

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Paul Bubny serves as Senior Content Director for Connect Commercial Real Estate, a role to which he brings 13-plus years’ experience covering the commercial real estate industry and 30-plus years in business-to-business journalism.
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