Million Acres a Motley fool company has an interesting summary on the coming impact e-commerce may have on industrial real estate and the demand for warehouses. Their article, Prologis Plans for the Expansion of E-commerce, goes into a bit of the outlook Prologis has for warehouse space. Likely we’ll see a continued demand for warehouses as we continue to see the impact from the Coronavirus.
Prologis has customers across a variety of sectors, so it is seeing firsthand how this economy impacts various industries. Chief Investment Officer Eugene F. Reilly reported that 60% of its customers are growing and 40% are shrinking. As you might expect, customers that traffic in consumer staples are in need of more space, while those that are apparel or home goods brands are facing headwinds. This may be temporary, but it could also spell doom for some smaller brands.
Prologis is betting on the growth of e-commerce — not just in the short term, but for the long haul. It reported that e-commerce now represents a 40% share of new leasing versus 23% before the crisis. However, the company is also anticipating that other customers will not be so fortunate, and so it is not planning acquisitions or speculative development. In the first quarter of 2020, it started $300 million in new developments, but 85% of those were pre-leased.
The company is forecasting that in the U.S. in 2020, supply will total 225 million square feet, down 18% year over year. Net absorption will hit the lowest level since 2010, down by 55%. Both the U.S and Europe will see vacancy rates increase (5.4% for the U.S. and 5.2% for Europe).