Insight Article Desktop Banner
 
 
Article Reprint
  •  
January 03, 2024

Look Ahead 2024: Re-, near-, and friend- shoring points to a different logistics market

Insight Video Mobile Banner
 
January 03, 2024

Look Ahead 2024: Re-, near-, and friend- shoring points to a different logistics market


Article Reprint

Look Ahead 2024: Re-, near-, and friend- shoring points to a different logistics market

Share Icon

January 03, 2024

 
 

Lauren Hochfelder, co-chief executive officer for Morgan Stanley Real Estate Investing says logistics will remain a favorite asset class for her firm. But she predicts there will be less of a rising tide lifting all boats now.

 
 

The rise in e-commerce has driven a sharp increase in industrial demand over the past decade, accounting for approximately 35 percent of US industrial leasing. At Morgan Stanley Real Estate Investing, we developed high conviction on e-commerce growth and invested early and heavily in industrial around the world.

We and others benefited from enormous value creation, including appreciation of two to three times in major US markets tied to the global flow of goods to large population centers.

While Morgan Stanley's research projects US e-commerce sales to grow by a still robust 8-9 percent per annum over the next five years, we also must now focus on a second secular shift: the reconfiguring global supply chain.

Seeking to diversify supply chains in response to the supply shocks of covid and an increasing trend to deglobalization, companies are shifting where they manufacture goods and thus shipping routes – favoring a model that includes reshoring, near-shoring and friend-shoring. We expect the US, Mexico ad India to be among the greatest beneficiaries.

But investing in industrial real estate – even within the US – now requires a nuanced understanding of how each of these global supply chain shifts is impacting demand for space.

Reshoring

The US stands out as a major beneficiary of supply chain de-risking. We expect an increase in traditional manufacturing, advanced manufacturing and bio manufacturing, funded both privately and publicly. According to the Reshoring Initiative, a US organization focused on repatriating commercial activity, reshored manufacturing jobs have increased 40 percent per annum since 2019, while Morgan Stanley research expects industrial automation to grow by 65 percent through 2030, two times the rate of the past decade.

Additionally, US domiciled investment in semiconductors and batteries has climbed to $320 billion in the past two years. Together, we believe this will drive demand for light manufacturing facilities, including in the Southeast, Texas, and Arizona, where 50 percent of reshoring investment is expected to occur. Given these facilities are capital intensive and corporate credit is constrained, business owners may seek to monetize their industrial real estate via sale-leasebacks as an alternative source of financing.

Near-shoring

US industrial real estate also benefits from near-shoring, as growth in imports from Mexico catalyzes warehouse demand there. Morgan Stanley Research expects industrial production in Mexico to grow by 2.4 percent per annum over the next five years, compared to virtually no growth over the past five. Additionally, our research team expects Mexico to experience a $90 billion surge in exports to the US over the period, 25 percent above today's levels.

Mexico-US supply chains are already entrenched, as complex manufactured goods cross between the two countries multiple times before final assembly, spawning demand in those US markets that closely tie to this cross-border trade. However, that demand differs based upon which manufacturing node in Mexico that are closest to and what product is manufactured. Investors need a refined appreciation of the underlying drivers. Our understanding has seen us invest in various projects in San Diego, California, and El Paso and Laredo in Texas.

Friend-shoring

The supply chain reconfiguration in Asia also affects relative port demand within the US. Shifting manufacturing from China to India is shifting shipping routes from West Coast to East Coast ports. While West Coast ports should continue to benefit from consumer-oriented production like fashion remaining in China and Vietnam, global shippers are diversifying further to mitigate risks around labor shortages and climate. Some are decentralizing US entry points into a ‘Five Corner’ strategy – the Southwest, Pacific Northwest, Northeast, Southeast and the Gulf of Mexico. Consequently, investors must understand forward-looking demand drivers and supply constraints within each port market.

While the rising tide of e-commerce lifted most industrial boats over the past decade, investors now need a nuanced strategy accounting for the direct and indirect impacts of these multi-polarization trends that are shifting demand within the US and elsewhere. 

 

Select Author(s) For Icon

Right Click Edit

 
 
Reproduced with permission of:
 
 
 
 
 

DISCLOSURES

The statements above reflect the opinions and views of the Morgan Stanley Real Estate Investing (“MSREI”) as of the date hereof and not as of any future date and will not be updated or supplemented. All forecasts are speculative, subject to change at any time and may not come to pass due to economic and market conditions.

Information regarding expected market returns and market outlooks is based on the research, analysis, and opinions of the investment team of the AIP Private Markets Team. These conclusions are speculative in nature, may not come to pass, and are not intended to predict the future of any specific Morgan Stanley investment.

Certain information contained herein constitutes forward-looking statements, which can be identified by the use of forward-looking terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “project,” “estimate,” “intend,” continue” or “believe” or the negatives thereof or other variations thereon or other comparable terminology. Due to various risks and uncertainties, actual events or results may differ materially from those reflected or contemplated in such forward-looking statements. No representation or warranty is made as to future performance or such forward-looking statements.

Persons considering an alternative investment should refer to the specific investment’s offering documentation, which will fully describe the specific risks and considerations associated with such investment.

Alternative investments typically have higher fees and expenses than other investment vehicles, and such fees and expenses will lower returns achieved by investors. Alternative investment funds are often unregulated, are not subject to the same regulatory requirements as mutual funds, and are not required to provide periodic pricing or valuation information to investors. The investment strategies described in the preceding pages may not be suitable for the recipient’s specific circumstances; accordingly, you should consult your own tax, legal or other advisors, both at the outset of any transaction and on an ongoing basis, to determine such suitability.

This is prepared for sophisticated investors who are capable of understanding the risks associated with the investments described herein and may not be appropriate for the recipient. No investment should be made without proper consideration of the risks and advice from your tax, accounting, legal or other advisors as you deem appropriate.

Morgan Stanley does not render tax advice on tax accounting matters to clients. This material was not intended or written to be used, and it cannot be used with any taxpayer, for the purpose of avoiding penalties which may be imposed on the taxpayer under U.S. federal tax laws. Federal and state tax laws are complex and constantly changing. Clients should always consult with a legal or tax advisor for information concerning their individual situation.

This material is only intended for and will only be distributed to persons resident in jurisdictions where such distribution or availability would not be contrary to local laws or regulations.

MSIM, the asset management division of Morgan Stanley (NYSE: MS), and its affiliates have arrangements in place to market each other’s products and services. Each MSIM affiliate is regulated as appropriate in the jurisdiction it operates. MSIM’s affiliates are: Eaton Vance Management (International) Limited, Eaton Vance Advisers International Ltd, Calvert Research and Management, Eaton Vance Management, Parametric Portfolio Associates LLC, and Atlanta Capital Management LLC.

This material has been issued by any one or more of the following entities:

EMEA

This material is for Professional Clients/Accredited Investors only.

In the EU, MSIM and Eaton Vance materials are issued by MSIM Fund Management (Ireland) Limited (“FMIL”). FMIL is regulated by the Central Bank of Ireland and is incorporated in Ireland as a private company limited by shares with company registration number 616661 and has its registered address at The Observatory, 7-11 Sir John Rogerson’s Quay, Dublin 2, D02 VC42, Ireland.

Outside the EU, MSIM materials are issued by Morgan Stanley Investment Management Limited (MSIM Ltd) is authorised and regulated by the Financial Conduct Authority. Registered in England. Registered No. 1981121. Registered Office: 25 Cabot Square, Canary Wharf, London E14 4QA.

In Switzerland, MSIM materials are issued by Morgan Stanley & Co. International plc, London (Zurich Branch) Authorised and regulated by the Eidgenössische Finanzmarktaufsicht (“FINMA”). Registered Office: Beethovenstrasse 33, 8002 Zurich, Switzerland.

Outside the US and EU, Eaton Vance materials are issued by Eaton Vance Management (International) Limited (“EVMI”) 125 Old Broad Street, London, EC2N 1AR, UK, which is authorised and regulated in the United Kingdom by the Financial Conduct Authority.

Italy: MSIM FMIL (Milan Branch), (Sede Secondaria di Milano) Palazzo Serbelloni Corso Venezia, 16 20121 Milano, Italy. The Netherlands: MSIM FMIL (Amsterdam Branch), Rembrandt Tower, 11th Floor Amstelplein 1 1096HA, Netherlands. France: MSIM FMIL (Paris Branch), 61 rue de Monceau 75008 Paris, France. Spain: MSIM FMIL (Madrid Branch), Calle Serrano 55, 28006, Madrid, Spain.

NOT FDIC INSURED | OFFER NO BANK GUARANTEE | MAY LOSE VALUE | NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY | NOT A DEPOSIT

Hong Kong: This material is disseminated by Morgan Stanley Asia Limited for use in Hong Kong and shall only be made available to “professional investors” as defined under the Securities and Futures Ordinance of Hong Kong (Cap 571). The contents of this material have not been reviewed nor approved by any regulatory authority including the Securities and Futures Commission in Hong Kong. Accordingly, save where an exemption is available under the relevant law, this material shall not be issued, circulated, distributed, directed at, or made available to, the public in Hong Kong. Singapore: This material is disseminated by Morgan Stanley Investment Management Company and should not be considered to be the subject of an invitation for subscription or purchase, whether directly or indirectly, to the public or any member of the public in Singapore other than (i) to an institutional investor under section 304 of the Securities and Futures Act, Chapter 289 of Singapore (“SFA”); (ii) to a “relevant person” (which includes an accredited investor) pursuant to section 305 of the SFA, and such distribution is in accordance with the conditions specified in section 305 of the SFA; or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA. This publication has not been reviewed by the Monetary Authority of Singapore.

Australia: This material is disseminated in Australia by Morgan Stanley Investment Management (Australia) Pty Limited ACN: 122040037, AFSL No. 314182, which accept responsibility for its contents. This publication, and any access to it, is intended only for “wholesale clients” within the meaning of the Australian Corporations Act. Calvert Research and Management, ARBN 635 157 434 is regulated by the U.S. Securities and Exchange Commission under U.S. laws which differ from Australian laws. Calvert Research and Management is exempt from the requirement to hold an Australian financial services licence in accordance with class order 03/1100 in respect of the provision of financial services to wholesale clients in Australia

Japan

For professional investors, this document is circulated or distributed for informational purposes only. For those who are not professional investors, this document is provided in relation to Morgan Stanley Investment Management (Japan) Co., Ltd. (“MSIMJ”)’s business with respect to discretionary investment management agreements (“IMA”) and investment advisory agreements (“IAA This is not for the purpose of a recommendation or solicitation of transactions or offers any particular financial instruments. Under an IMA, with respect to management of assets of a client, the client prescribes basic management policies in advance and commissions MSIMJ to make all investment decisions based on an analysis of the value, etc. of the securities, and MSIMJ accepts such commission. The client shall delegate to MSIMJ the authorities necessary for making investment. MSIMJ exercises the delegated authorities based on investment decisions of MSIMJ, and the client shall not make individual instructions. All investment profits and losses belong to the clients; principal is not guaranteed. Please consider the investment objectives and nature of risks before investing. As an investment advisory fee for an IAA or an IMA, the amount of assets subject to the contract multiplied by a certain rate (the upper limit is 2.16% per annum (including tax)) shall be incurred in proportion to the contract period. For some strategies, a contingency fee may be incurred in addition to the fee mentioned above. Indirect charges also may be incurred, such as brokerage commissions for incorporated securities. Since these charges and expenses are different depending on a contract and other factors, MSIMJ cannot present the rates, upper limits, etc. in advance. All clients should read the Documents Provided Prior to the Conclusion of a Contract carefully before executing an agreement. This document is disseminated in Japan by MSIMJ, Registered No. 410 (Director of Kanto Local Finance Bureau (Financial Instruments Firms)), Membership: the Japan Securities Dealers Association, The Investment Trusts Association, Japan, the Japan Investment Advisers Association and the Type II Financial Instruments Firms Association.

 

This is a Marketing Communication.

It is important that users read the Terms of Use before proceeding as it explains certain legal and regulatory restrictions applicable to the dissemination of information pertaining to Morgan Stanley Investment Management's investment products.

The services described on this website may not be available in all jurisdictions or to all persons. For further details, please see our Terms of Use.


Privacy & Cookies    •    Your Privacy Choices Your Privacy Choices Icon    •    Terms of Use

©  Morgan Stanley. All rights reserved.