Key Takeaways
- • Prologis research forecasts nearly 400 million square feet of positive net absorption in global logistics real estate during 2012, signaling sustained recovery across production, trade, and inventory cycles.
- • U.S. trade and consumption have surpassed pre-recession peak levels, but inventory levels remain unsustainably low and must accelerate growth in the second half of 2011 to match economic demand.
- • Net absorption as a percentage of logistics real estate stock is expected to exceed its pre-crisis peak in 2012, indicating demand strength will outpace historical benchmarks.
- • Prologis Research projects increased demand for modern logistics space over the next 12 to 18 months, driven by inventory normalization required to support current and anticipated consumption levels.
Summary
Prologis, Inc. (NYSE: PLD), the global leader in industrial real estate ownership, operation, and development, released research on September 7, 2011, indicating that the logistics real estate market is on track for continued recovery despite a deeper recession and slower-than-anticipated economic rebound. The research paper, titled "Logistics Real Estate on Track for Continued Rebound," analyzes leading indicators of demand and projects a substantial recovery across global markets.
The core thesis centers on inventory dynamics. According to Prologis Research, U.S. trade and consumption levels have already recovered past their pre-recession peaks, yet inventory levels remain at unsustainably low levels—near record lows. This structural imbalance creates significant tailwinds for logistics real estate demand. To sustain current and projected consumption levels through the second half of 2011, inventories must accelerate their replenishment cycle, which will require substantial expansion of warehouse, distribution, and storage capacity.
The research projects approximately 400 million square feet of positive net absorption globally in 2012, driven by this inventory normalization. While inventory levels may not immediately return to pre-recession levels, they have fallen below the threshold warranted by current economic activity and consumption patterns. David C. Twist, vice president of Prologis Research, noted that "the global economy and the logistics real estate market are on track for a stronger rebound in the second half of 2011," with expectations for "increased demand for modern logistics space over the next 12 to 18 months."
A particularly bullish indicator is Prologis's projection that net absorption as a percentage of total logistics real estate stock will exceed its pre-crisis peak level in 2012—a threshold that historically serves as a measure of market health and capacity utilization. This forecast suggests that logistics real estate demand will not merely recover to pre-recession levels but will accelerate beyond them, reflecting structural economic shifts in supply chain operations and inventory management practices.
The core thesis centers on inventory dynamics. According to Prologis Research, U.S. trade and consumption levels have already recovered past their pre-recession peaks, yet inventory levels remain at unsustainably low levels—near record lows. This structural imbalance creates significant tailwinds for logistics real estate demand. To sustain current and projected consumption levels through the second half of 2011, inventories must accelerate their replenishment cycle, which will require substantial expansion of warehouse, distribution, and storage capacity.
The research projects approximately 400 million square feet of positive net absorption globally in 2012, driven by this inventory normalization. While inventory levels may not immediately return to pre-recession levels, they have fallen below the threshold warranted by current economic activity and consumption patterns. David C. Twist, vice president of Prologis Research, noted that "the global economy and the logistics real estate market are on track for a stronger rebound in the second half of 2011," with expectations for "increased demand for modern logistics space over the next 12 to 18 months."
A particularly bullish indicator is Prologis's projection that net absorption as a percentage of total logistics real estate stock will exceed its pre-crisis peak level in 2012—a threshold that historically serves as a measure of market health and capacity utilization. This forecast suggests that logistics real estate demand will not merely recover to pre-recession levels but will accelerate beyond them, reflecting structural economic shifts in supply chain operations and inventory management practices.
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