“While global trade remains integral to the logistics ecosystem, U.S. logistics real estate demand is fundamentally anchored in domestic consumption” is the conclusion of a piece of analysis that has just been published by the logistics property provider, Prologis. If true, it is an important insight for judging the prospects of the logistics sector both in the US and elsewhere.
Examining demand across the US, Prologis asserts that key growth markets such as Washington D.C., Philadelphia, South Florida, Charlotte, Portland, and Central Texas still have insufficient warehousing capacity to sustain consumer demand. Even if there are interruptions to global trade, these markets will continue to grow, driven by retail and related expenditures.
It is also the case that regional markets that have high exposure to marine logistics may not be overly vulnerable, with places such as New York, Southern California and Seattle having high-levels of what Prologis calls “domestic-facing demand” that supports continued warehousing investment, although Prologis also admits that certain regions, such as Savannah, Memphis and Charleston are “highly exposed to global trade, with up to 75% of customer operations linked to international flows” and that “these markets face outsized risks to changing terms of trade”.
Prologis does admit that “without clarity on future policy and its permanence”, estimating the impact of tariff policies on warehousing demand is an “hypothetical exercise with a range of outcomes”. However, the company makes the valuable point that it is demand for warehousing at the ‘production end’ of the supply chain that is likely to experience a higher level of volatility. Even under normal conditions, supply chains can change, and the logistics property provision must adapt. In contrast, areas of product consumption have a much more stable demand profile for warehousing. Therefore, in volatile conditions that apply today, the highest risk to the warehousing sector is in economies and regions with a high level of manufacturing production.
Possibly Prologis underestimates the impact on demand that will result from higher product cost as a result of less optimal supply chains. None-the-less, their observation about the importance of consumer demand to warehousing and the vulnerability production locations to supply chain volatility is valuable. Obviously, Prologis, which announced first quarter revenue up 10.9% year-on-year, has an interest in sustaining confidence in the warehousing market. But its example illustrates that in volatile markets there are both winners and losers.
Author: Thomas Cullen
Source: Ti Insight
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