Surging demand and rising barriers to new development have collided to create an extreme scarcity of logistics space where it is most needed. One way to mitigate supply shortfalls is converting office space to logistics space, according to Prologis.
Offices face lingering uncertainty because of the pandemic-driven shift to remote work. Health and safety concerns are driving a flight-to-quality and adding to the cost of retrofitting older office buildings. In fourth quarter 2021, for example, the office vacancy rate was 16.6 percent, 4.4 percentage points higher than fourth quarter 2019. In contrast, the logistics vacancy rate declined 1.4 percentage points during the same period to an all-time low of 3.4 percent. This contrast might suggest high potential for office-to-logistics conversions, but challenging economics add hurdles on the land availability, regulatory and competitive fronts.
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