Global logistics markets showed no signs of slowing at the start of 2018, with buoyant demand levels pushing vacancy to new historic lows. With increasing competition for quality space, we expect further acceleration in rental growth over the remainder of 2018.
Positive sentiment indicators and continued tenant demand point to a good start for the U.S. industrial market in 2018. U.S. vacancy declined by 20 bps to a new all-time low of 4.8% in the first quarter, finally going below the 5.0% mark. The overall vacancy has been halved since the beginning of 2010.
Spurred by an increase in absorption of warehouse space, U.S. industrial rents inched up further in the first quarter with year-on-year growth of 5.3%. As top logistics markets continue to operate at a sub-3.0% vacancy rate, we expect continued competition for quality space to add pressure on rents through 2018.
The European warehouse market started 2018 with continued robust levels of demand and historically low vacancy rates, with the European aggregate now well below 5%. Growing demand for urban warehousing, linked in part to the growth of e-commerce, is driving the need to intensify the use of industrial land in some major cities, which could encourage some multi-storey ramped warehousing development or multi-level warehousing.
With demand levels still largely driven by structural change in supply chains, there are no signs of an imminent slowdown in activity. European average prime warehouse rental growth picked up over Q1 2018, albeit remaining patchy, and is expected to accelerate further in the rest of the year, with a growing number of markets registering increasing prime rents.
Rents edged up further in most markets across Asia Pacific, increasing sharply in Beijing as landlords took advantage of their strong bargaining power. Availability in the Hong Kong market remained tight, enabling rents to advance over the quarter, while the recent uplift in trade conditions has yet to translate into a rise in rents in Singapore given the substantial amount of available space in the market.
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