Industrial Insights - October 2023
Executive Summary
Prologis presented its annual Groundbreakers event alongside research examining automation's trajectory in logistics. Recent lease comparables reveal softening rates despite widespread predictions of continued increases.
Lease Comps Analysis
Trailing 30-day lease data indicates rates are declining contrary to market expectations. The analysis examined Southern California industrial properties ranging from 21,000 to 752,497 square feet, revealing peak pricing occurred around December 2022 with subsequent gradual decreases.
Orange County data (20,000-200,000 SF range) shows lease rates have dropped approximately $0.04 PSF, with increased free rent making effective rates decline more substantially. Class A and B existing properties averaged lower rates than new construction Class A assets, which command $2.00-$2.50 PSF NNN across the four-county region.
Groundbreakers Presentation Highlights
Hamid Moghaddam led discussions on six critical topics:
Supply Chain Readiness: AI integration across logistics touchpoints is accelerating, with adoption in its early stages.
Workforce Challenges: Workers expect innovation and sustainable career development, creating urgency for talent solutions.
Mobility Transformation: Electric vehicle infrastructure expansion supports carbon reduction and supply chain resilience.
Energy Transition: Balancing doubled energy consumption by 2050 against emission reduction targets requires substantial investment.
AI-Enabled Logistics: Autonomous vehicles and intelligent IoT systems revolutionize operations while raising authenticity and security concerns.
Supply Chain Evolution: Industry pioneers debate AI's implications for safety and efficiency improvements.
Prologis Research Findings
A significant insight: "With logistics real estate representing 5% of total supply chain costs—transportation averages 50%, labor 35%—real estate strategy follows transportation and labor decisions."
Key discoveries include:
- Logistics real estate investments outpaced revenue growth 57% over the past decade, creating what researchers term the "supply chain productivity paradox."
- Decentralized networks unlock previously unavailable revenue opportunities and cost savings across five identified drivers.
- AI primarily enhances supply chain adaptability to drive revenues; efficiency gains are secondary and unlikely reducing facility needs.
- Autonomous Mobile Robots (AMRs) adoption accelerates fastest with minimal real estate implications. Up to 50% of logistics operations may incorporate AMRs within 10-15 years.
- Automation increases throughput and drives facility upgrades, with renewable energy infrastructure becoming increasingly critical in site selection.
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Contact Information:
Justin Smith, SIOR | Grant LaBounty | Chris Vassilian | Jeannette Cano Lee & Associates, Irvine, CA