How has the pandemic changed logistics in North America?

DL: The pandemic clearly accelerated trends that were already underway, such as the growth of e-commerce. It has also forced companies to rethink their supply chain and inventories.

Our North America panel

David Levine
Senior managing director,
Blackstone Real Estate

Devin Barnwell
Head of logistics US,
Brookfield Asset Management

Steve McCarthy
Head of North America,
AXA Investment Managers, Real Assets 

Palmer Letzerich
Senior managing director and head of industrial and logistics,

DB: Fueled by e-commerce tailwinds, supply chain pressures, technology and shifting consumer needs, the US logistics market has seen unprecedented demand during this cycle, pushing vacancy to a historical low and sustaining material rent growth nationally. We see continued demand and rent growth for functional, well-located industrial product not only in the Tier 1 markets, but also in secondary markets.

SM: Covid-19 has accelerated US e-commerce sales which, when combined with increased consumer spending and ‘just-in-case’ inventory management strategies, has led to significant increases in tenant demand, rental rates and property values. In addition, during the past two years institutional investors have primarily focused on two asset classes (multifamily and industrial), which has led to lower cap rates in the industrial sector.

PL: The pandemic was responsible for two major and permanent shifts that put the product type on the map: increased absorption and increased investor appetite. Now that consumers are permanently comfortable ordering online, the square footage that logistics companies require has increased dramatically. Adding fuel to the absorption fire is the fact that occupiers are now also increasing inventory levels to address supply chain shocks.

Which market will see the most interest in 2022?

DL: Given the population growth we’re seeing, we believe the Sun Belt markets will continue to be a large focus. The last-mile logistics thesis has been well documented in traditional gateway markets such as Los Angeles, San Francisco and New York, but we are starting to see similar trends across prominent Sun Belt markets like Atlanta, Austin, Phoenix and Las Vegas.

DB: The gateway, port-centric markets will continue to see outsized demand and, while most of the investment activity will continue to focus efforts in these areas, there are several markets with a strong labor force and business-friendly environment that offer an alternative, both from a user and an investor perspective. Austin and Phoenix are great examples of markets that are poised for significant growth in 2022.

SM: Inland Empire will continue to be the US’s star-performing market, offering proximity to the massive LA ports and limited development supply.

PL: Coastal markets along with inland markets like Dallas will continue to draw investors due to eye-popping absorption, cap rates and rent growth and incredibly high barriers to entry. Subsequently, relatively cheap markets in Texas, Colorado and Arizona will continue to attract new investment.

Which market is most unfairly overlooked?

DL: We have seen tremendous economic and employment growth in Boston, particularly across the technology and life sciences sectors. For a long time, Boston was not viewed as a distribution market, but that perception is now changing.

DB: Boston has been traditionally overlooked by institutional investors as a logistics market. However, the favorable demographics, strong labor force and elimination of a lot of traditional industrial space over the years has led to very dynamic market conditions.

SM: While strong population and job growth will continue to fuel logistics demand in the Southeast and Southwest markets in the US, we also believe tenants will seek space near inland ports offering good air and rail connectivity. Examples of these markets include Louisville, Kentucky and Columbus, Ohio.

PL: We are seeing spread in secondary markets in the US, but it is becoming increasingly difficult to generate satisfactory returns without pushing too aggressively on underwriting assumptions. Where I see the most spread and an excellent opportunity for dollarized industrial returns is in Mexico.

What will be the biggest change in logistics in 2022?

DL: The supply chain issues the country faces are definitely top of mind. The congestion we are seeing at the major ports has led to significant challenges for certain companies.

DB: As technology continues to evolve across the sector, 2022 will be a year of accelerated adoption that optimizes supply chains and promotes efficiency. Another topic that will see tremendous evolution and development is the ‘greening’ of industrial space.

SM: Even stronger investor demand and competition as industry players continue to chase the promise of sustained rental growth in the sector. Increasing construction and labor costs will continue to be a significant challenge.

PL: The separation of true core from commodity core, where true core outperforms in the near and mid-term, and the performance of commodity buildings could begin to lag in the medium term.