E-commerce growth, increased inventory requirements, strong consumer spending and supply chain diversification are driving strong industrial real estate fundamentals worldwide with no slowdown in sight.


Top of Mind

The need for reliable inventory levels is driving more robust supply chains due to labor shortages, rising energy costs and extreme weather patterns.


Rent growth is expected to reach double digits in some major U.S. markets this year, with more moderate growth expected in EMEA and APAC markets. While bulk distribution warehouses are in high demand, continued consumer expectations for same-day delivery services are creating more need for smaller-scale urban distribution facilities. Investor appetite for industrial assets is expected to grow with new and existing funds targeting emerging markets and lower-quality buildings in urban markets.

E-Commerce Evolution & Supply Chain Volatility To Fuel Growth

Industrial real estate fundamentals were largely unscathed by the pandemic-led global recession and this resilience is expected to make 2021 the strongest year on record for the sector. E-commerce growth, inventory control, economic recovery and supply chain diversification will drive industrial fundamentals in each region of the world for the foreseeable future. Many occupiers are in the early stages of expanding distribution networks to keep up with changes in consumer preferences and demand. CBRE expects vacancy rates will remain low with strong demand and rent growth.

Figure 13: Global E-Commerce Growth 2020 VS 2025

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Source: Euromonitor, CBRE Research, Q1 2021.
Note: For more information, see CBRE’s 2021 Global E-Commerce Outlook.

Due to intense demand for consumer products, supply chain disruptions continue to occur. Challenges include labor availability, supply chain disruptions, increased energy costs, extreme weather patterns and certain unforeseen events like the recent blockage of the Suez Canal. This will lead to increases in “safety stock” to guard against supply chain disruptions, fueling more demand for industrial real estate in key hubs. The relative lack of available space near population centers globally and increased rental rates will lead to more outsourcing of distribution operations and increase the share of industrial real estate transactions by third-party logistics providers (3PLs), particularly in the U.S.

In the U.S., 3PLs accounted for nearly 30% of transaction volume through the first five months of 2021, up by 5 percentage points from the same period last year. Retailers and wholesalers will continue to outsource distribution in the coming quarters as transportation costs increase, vacancy rates remain low and rent growth accelerates.

Asking rental rates in the U.S. have increased by an average of 6.8% over the past five years; however, taking rents are appreciating even more quickly. On average, the first-year base rent has increased by 9.7% over the past 12 months, with some coastal markets like the Inland Empire and Northern New Jersey seeing increases of more than 20% on taking deals.

Strong Leasing Activity; Rent Growth Uneven In Certain Locations

Asia-Pacific is seeing strong leasing activity on the back of solid economic growth and a recovery in global trade. Apart from large 3PLs and e-commerce occupiers, there is growing demand for highly specialized cold-storage facilities from grocers and pharmaceutical companies. Around one-fifth of APAC’s leasing activity in Q1 2021 was for cold-chain-related requirements.

Growing requirements for same-day delivery have stimulated demand for smaller-scale urban distribution facilities near densely populated areas. Some occupiers are looking for spaces in underperforming retail and office assets to set up mini order-fulfillment centers or last-mile delivery stations.

Strong leasing demand will underpin further rental rate increases in the coming quarters. However, the pace of rent growth will be uneven by market. The imbalance in new supply will create a two-tier market characterized by intense competition and rising rents for logistics facilities in prime areas, and incentives such as longer rent-free periods for properties in emerging locations. New supply will limit rent growth prospects in Greater Tokyo, Greater Seoul and certain Mainland China Tier 1 cities.

In Europe, low vacancy rates and the need to secure skilled workers continue to drive strong tenant competition for any available space. Large warehouses are in high demand and difficult to find, particularly in the U.K. and France, where scarcity of land and rising construction costs are also limiting development—even for build-to-suit projects.

Deals in Europe are taking longer to close as landlords push to offset the rent declines of 2020. We expect prime rents will increase in Europe this year, particularly in secondary markets.

Investors Will Seek Opportunities To Diversify Portfolios

Global industrial sales volume decreased slightly year-over-year in 2020 to $178.2 billion, largely due to an 11.7% drop in the U.S. to $108.9 billion. Asia-Pacific investment volume grew by 27% to $21 billion and EMEA volume increased by 17% to $48 billion. Strong market fundamentals will continue to fuel rental rate increases and investor demand; however, fierce competition will push existing and new capital toward emerging markets and lower-quality buildings in urban markets.

Figure 14: Global Industrial Investment Volume

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Source: CBRE Research, Real Capital Analytics, Q1 2021.