European logistics: stock shortage and rising demand to sustain rental growth

More than two-thirds (68%) of logistics supply chain executives, surveyed on behalf of Aberdeen Standard Investments, claim a shortageof efficient warehousing restricted their growth ambitions to no more than a modest pace.

According to the survey, conducted by Transport Intelligence, 39% of respondents declared that a shortage of efficient warehousing was a barrier to their growth, while a further 35% claim their existing capacity only allows modest growth. 

Significant spare capacity for expansion was reported by just over a quarter of the respondents. Only 40% of those with significant spare capacity were logistics operators, suggesting they are running at a higher capacity than other respondent types, such as manufacturers and retailers.

Furthermore, only 12% of those with “significant” spare capacity were from the e-commerce sector, highlighting that this sector’s growth aspirations outweigh its existing capacity. Finally, more than three-quarters (76%) of supply chain executives, claim their businesshad grown modestly or substantially over the last 12 months.

The shortage of warehouse space is becoming a real issue in some markets. Vacancy rates are typically below 5-6% for good-quality, modern logistics space in most European cities, according to Aberdeen Standard Investments.

Aberdeen Standard Investments’ research team, led by Lars Flaoyen, writes:

“Development levels, on the whole, are still relatively constrained. A lack of good quality and efficient supply is more prominent in urban areas because of the diminishing supply of industrial land, a trend we see strengthening across European cities.

“The ever-widening low emissions zones in major cities and restrictive planning policies exacerbate the problem. This forces logistics to compete with residential and retail, both of which command higher rents. This is likely to restrict logistics facilities in major population centres, ultimately resulting in a limited supply and therefore competitive leasing conditions.

“This supports our view that income from logistics should become more robust, resulting in pockets of stronger rental performance, particularly in urban logistics locations. It is mainly online retailers and their logistics partners that will face a shortage of supply of warehouse space and incur higher property costs overall, so there are risks to this view too.”

At the same time, the three main drivers of logistics demand – trade, manufacturing and consumption – have been growing steadily over the last five to six years, increasing the need for the movement of goods.

Aberdeen Standard Investments’ research team, led by Lars Flaoyen, writes:

“The clear growth message from the survey reveals that stronger rental tension could be emerging. Demand reached a record high in 2017, with 2018 being the second-highest year. Roughly 80% of take-up was satisfied through pre-lets last year, suggesting there is a shortage of suitable standing stock to satisfy demand.”

Transport Intelligence surveyed 123 supply chain executives from 29 European countries between November and December 2018.