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SPOTLIGHT ON THE GLOBAL LOGISTICS MARKET

SPOTLIGHT ON THE GLOBAL LOGISTICS MARKET

February 2016

Cityscape investigates how changing global trade patterns create new real estate investment opportunities.

Over the past 35 years, global trade has increased by nearly 600%, spurring the development of wider, more complex supply chains worldwide. To support this growth, logistics hubs connecting multiple transport modes have been established in virtually every country. However, as emerging markets grow and new centres of production materialise, distribution networks are expanding their footprints, setting the stage for the rise of a new group of global logistics hubs in the coming decade.

According to a recent CBRE Research report, considering a host of factors, that include infrastructure investment, new trade policies and agreements, demographics and evolving supply chains and technologies, 20 new markets are on the verge of becoming global logistics hubs. These hubs are tipped to be the main driving force behind new industrial real estate markets, and will be home to large clusters of distribution facilities, which are highly sought after by both real estate investors and logistics operators. The new hubs are driving a tectonic shift in the demand for industrial real-estate and creating new investment opportunities for property investors.

TRADE WINDS

Since 1980, world GDP has grown, on average, at just under 3.5% annually. Over the same time, global trade has grown at 5.5% annually, with the explosion of cross-border trade reflecting the expansion of production and consumption into new locations. “Supporting this network are the large and strategically located global logistics hubs, that are the main driving force behind the industrial real estate markets and are at the centre of large clusters of distribution facilities,” says David Egan, Head of Industrial & Logistics Research, CBRE, adding that these hubs provide a number of value-added services such as storage, customs clearance, packaging and processing for the enormous volume of cargo moving throughout the global supply chain.

As the hub-and-spoke model has evolved over the past 40 years, logistics activity began to cluster at “gateway” locations, which emerged as the current global hubs that share certain key characteristics which have made them natural locations for the consolidation of global logistics and supply chain activity. “Shifts in these factors like transportation infrastructure, industrial infrastructure, market access and demand, business environment, political stability and trade agreements have altered the status of some locations, and will do the same for others in the future,” says CBRE’s Egan.

EMERGING MARKETS

While each of the select regional hubs that are poised to become major players in the network are changing due to influences unique to them, there are a set of especially important factors that are common across the world and play a role in the growth of logistics hubs from regional to global players.

The prime factor among them is investment. Physical improvements to regional transportation infrastructure, such as deepening of port channels, adding rail access, and growing cargo-handling facilities can increase the viability of a location for substantial international trade. For instance, South Florida, the region that includes Port Miami and Port Everglades, is a prime example of a long-time regional hub that is positioned to emerge as a global hub thanks, in large part, to investment in transportation infrastructure both locally and abroad.

While Manchester-Liverpool is a prominent European example of an emerging global hub, other examples of hubs that are strongly benefiting from infrastructure investments are the Persian Gulf hubs, which are aiming to follow the success story of Dubai. “Massive infrastructure investment, both in seaport and airport facilities, is underway in Abu Dhabi, Dammam and Doha. Similarly, the Egyptian hub of Port Said is expected to profit from the recent enlargement of the Suez Canal. These hubs are strong growers and it is worth watching their further development closely,” says Egan.

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