Global logistics rents have experienced their first notable decrease in more than a decade, according to Prologis’ report, “2024: Market Rents Reset After Years of Performance.” The report reveals a 5% drop in global logistics rents for 2024, including a 7% decrease in the U.S. and Canada and a 1% drop in Europe. These declines are attributed to normalized market conditions following extraordinary pandemic growth, an influx of new supply, and slowed demand due to economic uncertainty and supply chain instability.
Despite this decrease, U.S. market rates are still 59% higher, and European rates remain 33% higher compared to the end of 2019. Prologis anticipates significant rent increases for leases rolling in the current year. Melinda McLaughlin, Global Head of Research at Prologis, described the decline as a correction following the post-pandemic demand surge. Prolonged economic uncertainty and heightened new supply have led to increased vacancies.
Regional outlooks vary. U.S. demand is expected to absorb excess vacancies, potentially leading to rent growth by late this year. In Europe, geopolitical risks and slower economic growth are counterbalanced by reduced new construction, keeping vacancy rates low. Asia faces economic challenges in China and stable conditions in Japan, while Latin American markets like Mexico and Brazil benefit from nearshoring and strong local consumption.
The report notes a significant gap between market rents and replacement cost rents, prominently seen in the U.S. with a 15% disparity, which has curbed new construction, leading to a 30% drop in construction starts for 2024. McLaughlin emphasized that occupier demand exceeding supply will build upward pressure on market rents, narrowing the gap between market rents and replacement cost rents.
Overall, the unprecedented decrease in global logistics rents stems from post-pandemic normalization, increased supply, and economic uncertainty. Different regions face unique challenges, but there is potential for market stabilization and subsequent growth, signifying varied regional dynamics and market adjustments.
