Key Takeaways
- • Prologis Research expects new logistics completions to fall short of demand in most locations over the next decade, as barriers to supply grow across geographic, economic, political and legal dimensions.
- • Replacement costs for logistics real estate rose nearly 60% over the past five years, including 15% in 2021 alone, according to Prologis Research estimates.
- • Prologis Research estimates only 50-100 million square feet of U.S. retail will be converted to logistics over the next decade, less than 3% of a typical year's new logistics supply.
- • New logistics supply is moving farther from consumption centers: post-2010 Greater New York properties average 50 miles from Manhattan, versus 28 miles for pre-2010 builds.
- • Building requirements, including labor-friendly design, automation readiness and ESG features, are raising costs while widening the performance gap between well-located, modern properties and older assets.
Summary
Prologis expects logistics real estate completions to fall short of demand in most locations over the next decade, following its earlier research on structural demand drivers. The firm attributes the constraint on new supply to several forces: scarce well-located industrial land, rising development costs, a more difficult regulatory environment and increasingly demanding building specifications.
Barriers to supply are rising. Industrial-zoned land is shrinking in dense metros due to conversions to other uses; in San Francisco, 362 permit applications between 2013 and 2020 sought to convert logistics sites to other uses, versus 57 applications for the reverse. Buildings constructed in 2000 or later are 55% larger and require 66% more land on average than those built in the 1980s and 1990s. As a result, new supply is being pushed farther from consumption centers. Post-2010 logistics properties in the Greater New York region average 50 miles from Manhattan, compared with 28 miles for earlier builds, with Chicago and Southern California also moving outward.
Prologis Research expects retail-to-logistics conversions to contribute little new supply, citing economic, political, physical and legal obstacles, including competing apartment uses, restrictive zoning, poor building reconfigurability and reciprocal easement agreements. Costs are also climbing. Replacement costs have outpaced inflation over the past decade, with land costs tripling in Toronto over ten years and land prices in the Port/Meadowlands submarket of New Jersey rising 475% over the same period. Steel prices in the United States tripled in the last year, according to the report, and construction timelines have lengthened by two to three months. Regulatory barriers are also increasing; logistics permits in the Netherlands fell more than 30% over nine years, and in the European Union, rezoning-dependent projects face development lead times roughly double those on industrially zoned land.
Requirements for new buildings are also rising. Labor scarcity, driven by e-fulfillment, which Prologis says uses roughly three times the labor of traditional warehouse operations, is pushing users toward well-located sites with skilled labor. Facilities are increasingly expected to support worker well-being, such as WELL certification, automation infrastructure and sustainability features including renewable energy access and EV charging. Prologis argues these trends reduce tenant price sensitivity for well-located, modern buildings, supporting rent growth for Class A space while older, less functional assets near urban cores retain value for last-mile delivery.
Barriers to supply are rising. Industrial-zoned land is shrinking in dense metros due to conversions to other uses; in San Francisco, 362 permit applications between 2013 and 2020 sought to convert logistics sites to other uses, versus 57 applications for the reverse. Buildings constructed in 2000 or later are 55% larger and require 66% more land on average than those built in the 1980s and 1990s. As a result, new supply is being pushed farther from consumption centers. Post-2010 logistics properties in the Greater New York region average 50 miles from Manhattan, compared with 28 miles for earlier builds, with Chicago and Southern California also moving outward.
Prologis Research expects retail-to-logistics conversions to contribute little new supply, citing economic, political, physical and legal obstacles, including competing apartment uses, restrictive zoning, poor building reconfigurability and reciprocal easement agreements. Costs are also climbing. Replacement costs have outpaced inflation over the past decade, with land costs tripling in Toronto over ten years and land prices in the Port/Meadowlands submarket of New Jersey rising 475% over the same period. Steel prices in the United States tripled in the last year, according to the report, and construction timelines have lengthened by two to three months. Regulatory barriers are also increasing; logistics permits in the Netherlands fell more than 30% over nine years, and in the European Union, rezoning-dependent projects face development lead times roughly double those on industrially zoned land.
Requirements for new buildings are also rising. Labor scarcity, driven by e-fulfillment, which Prologis says uses roughly three times the labor of traditional warehouse operations, is pushing users toward well-located sites with skilled labor. Facilities are increasingly expected to support worker well-being, such as WELL certification, automation infrastructure and sustainability features including renewable energy access and EV charging. Prologis argues these trends reduce tenant price sensitivity for well-located, modern buildings, supporting rent growth for Class A space while older, less functional assets near urban cores retain value for last-mile delivery.
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