Logistics sector remains tenacious against 2023 headwinds

Despite logistics assets being the darling of the commercial real estate sector over the pandemic period, underpinned by heavy demand from third-party logistics players, e-commerce companies and pharmaceutical firms, the industry is now being challenged by higher borrowing costs as well as more cautious spending from consumers. 

As headwinds blow into 2023, rental growth is set to moderate compared to the previous two years. Logistics occupiers may have to adopt a more cost-conscious business stance and reassess their portfolios to consolidate the space required to minimise capital expenditure.

Here are some key trends that we may see in the coming year:  
 
1. Demand for logistics to normalise   

As consumers are re-evaluating their spending in light of inflationary pressures and deteriorating sentiments end-2022, the pace of private consumption is anticipated to lose steam but remain resilient in 2023.   

As such, companies are bracing for slowing consumption. Those who increased inventory to adopt a 'just-in-case' approach may reassess their requirements for logistics spaces and focus their plans on nearshoring to mitigate against potential supply-chain issues.  
 
Despite this, recent shipping patterns imply that supply chains are beginning to normalise, alleviating some pressure on demand and rent.  

2. High-quality Assets Will Continue to Be Scarce in the Long-Run

Unlike more established logistics markets like the USA or Europe, Asia-Pacific has an acute shortage of modern facilities and fierce competition made worse by the delay in the completion of institutional-grade assets during the global health crisis. As consumer preferences for product type and delivery speed continue to grow more complex, the rate of obsolescence of existing facilities only accelerates. 
 
With slightly over 8 million sqm of incoming supply and weakening expansionary demand, vacancies in the region will increase only marginally. As such, the structural undersupply of prime warehouses will continue its upward pressure on rents.  

4. Life Sciences Sector Emerges as a Bright Spot

One sector that has thrived during the pandemic has been the life sciences sector, with every aspect of this sector requiring more space: from research and development to manufacturing facilities to pharmaceutical logistics.  
 
Science parks across Asia-Pacific are seeing demand from companies seeking to expand their R&D lab facilities footprints. Meanwhile, Asia-Pacific-based demand for pharmaceuticals is spurring the need for more manufacturing facilities based in this region, closer to consumers. Lastly, there is also increasing demand for high-specification facilities that improve distribution networks and last-mile efficiency. 

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The Asia-Pacific Outlook Report is an annual publication that delves into the repercussions of the pandemic, increasing interest rates, and rising mortgage rates on the Asia-Pacific residential landscape using official statistics and outlines the forecast for 2023.

For more insights, please download the full report here.