Defining Prime Logistics Markets

Because an outsized proportion of employment and demand growth, e-commerce expansion, and supply chain investment is realized in global prime logistics markets, it is useful to briefly describe and define these markets.

In compiling Heitman’s Prime Cities and Logistics indexes, we make detailed distinctions between what constitutes, respectively, a prime real estate market in general and a prime logistics market in particular. Heitman defines a “prime” real estate market in general as one characterized by overall attractiveness to occupiers and developers, strong investor interest and depth of transaction market, and large underlying market size and liquidity. Broadly speaking, these markets are national capitals and gateway cities with significance at the pan-continental or global levels.

The logistics sector is unique in having quite a different range of markets that can be considered prime as compared to other sectors. This is because logistics assets are tied to different drivers than other property types. Rather than being firmly anchored to in their own cities (“points on a map”), as an office asset would be, logistics properties are tied to flows of goods among cities (“lines and arrows”).

We apply the following definition of “prime” to logistics investment:

  1. In cities that are prime for investment but do not play a major role in goods movement, prime is limited to in-fill urban logistics properties that are focused on last-mile distribution.
  2. In prime logistics markets that are not otherwise metro markets considered prime for office/retail/hotel, we suggest a focus on bulk distribution facilities with physical and locational characteristics that make them re-usable by a wide range of tenants.

To provide an example of distinctions between logistics and other sectors with respect to what constitutes a “prime” market, Berlin is a strong and growing city that is now considered to be a prime market for office and retail, however, its stature as a logistics market is considerably less. This is in large part because the city has a relatively peripheral location with respect to the rest of Germany and Europe. Moreover, Berlin lacks an endowment of infrastructure, such as a seaport or large airport. As such, its logistics market is largely local-serving and, in the below schematic, would be conceptually positioned in the portion of the urban logistics circle that does not overlap with the bulk distribution circle. This contrasts with a city like Paris, which is prime from the perspective of logistics, in addition to other sectors. Paris is a large, prime global city that is also centrally located relative to the European population and benefits from major infrastructure. As previously noted, Paris is listed as a top city in both Heitman’s overall Prime Cities and Logistics indices, and would be positioned in the portion of the below schematic where “traditional” prime markets and prime logistics markets overlap.

This thought framework regarding prime markets is one important element of the perspective from which we view global logistics trends.

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