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Resilience, as opposed to efficiency, is emerging as a new goal for supply chain management as global turmoil forces logistics customers to reorganize how they ship goods. Warehouse builders take note, with a framework at the largest industrial REIT in the world suggesting that more wiggle room in the system could generate up to 185 million square feet of additional U.S. logistics demand
“When you consider the global nature of the pandemic, it has really underscored the need for resilience in our customers’ supply chains as well as increased inventory levels,” said Megan Creecy-Herman, Senior Vice President and operations manager for the West region at Prologis inc.
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Speaking at the CREate 360 virtual conference hosted by the Society of Industrial and Office Realtors, Creecy-Herman said rising trade tensions in the year or two leading up to the coronavirus outbreak had already prompted customers to start focusing on greater resilience. Now Prologis sees that many customers are likely to increase inventory by 5-10% as part of the change in strategy.
As a result, incremental incremental logistics demand could total around 140 to 185 million square feet, the Phoenix-based executive noted. Sectors with traditionally low inventory levels – food and beverage, electronics and appliances, health care and diversified retail – are the most likely to reassess their needs.
Online shopping spree
The pandemic has supercharged the adoption of e-commercegrowing its share of U.S. retail sales from around 15% at the end of 2019 to 25% in April, which actually pushed adoption forward by several years, Creecy-Herman pointed out.
Prologis predicts that this year’s rise could generate additional demand for logistics real estate in the United States of approximately 400 million square feet, or approximately 150 to 200 million square feet per year over the next two to three years. Location-wise, this demand should primarily be for last-mile urban facilities, i.e. distribution centers located close to cities, as opposed to the more centralized distribution model of the past.
Logistics users will need to focus on providing the service levels needed to meet a growing appetite for next day and same day delivery. “We think they’re going to have even higher expectations for those timelines and for how quickly they want their product,” Creecy-Herman said.
Prologis, which owns or has investments in a logistics portfolio of nearly 1 billion square feet in 19 countries, reported that net effective rent for its properties jumped 25.9% in the third quarter, led by the US portfolio. of the company to 30.7%. Overall occupancy at the end of the quarter was 95.6%, according to the NYSE-listed company.
