Germany is leading the index notably due to the customers’ fast adoption of e-commerce habits, the scale of the domestic retail industry and its proximity to large customer hubs – such as in Poland, Czech Republic and Austria, as well as Switzerland and Luxembourg, where the share of cross border e-commerce is high, according to Savills.
Lydia Brissy, Director, European Commercial Research, Savills, explains:
“The central positioning of Germany, between the western and eastern flanks of Europe, is strategic for the logistics market. Extensive and quality infrastructure enable the country to generate some of the highest levels of both road and seaborne freight across Europe. The LPI score is the highest of all European countries benchmarked in this report. Strong investor interest for the logistics sector has pushed prime yields downward, by 300 basis points in Berlin over the past five years. Prime logistics yields range between 4.1 and 4.4% depending on locations, the lowest yield across Europe after the UK.”
Francestill has a strong growth potential for its ecommerce market, says Savills, adding that the spread between internet and ecommerce penetration remains relatively wide compared to that of the UK, Germany and the Netherlands, whilst its retail market is large with most notably a high level of retail sales per capita.
Online retail sales are forecast to grow by 9.8% per annum over a five-year horizon, according to Statista. Both the levels of road and seaborne freight transport are amongst the highest in Europe, thanks to very good infrastructure. However, labour costs are amongst the highest in Europe. Investors interest for the sector is expanding hence prime yields are compressing (-275 basis point compared to five years ago).
The UK comes third, benefiting from having the most mature e-commerce market. The spread between the internet and e-commerce penetration rates is the lowest across Europe, meaning that high internet usage has fully translated to online purchases. Hence, the potential for further growth is now slowing down. According to Statista, e-commerce is expected to increase by 6.7% pa over the next five years, the lowest level anticipated in Western Europe.
The rapid expansion of online sales has already translated into growing demand from logistics market players. Additionally, the UK is a strategic destination when it comes to labour costs, says Savills. The prime logistics yield in the London area is currently at 4%, the lowest in Europe and has come in by 175 basis points over the past five years.
The Netherlands is ranked fourth. Internet penetration is amongst the top five of the 32 countries benchmarked in the report and the limited spread with e-commerce penetration reveals the maturity of the market.
Additionally, online sales are still expected to grow by 9.2% pa until 2022 according to Statista. Besides, the country has a close and long relationship with the freight and logistics industry. The amount of logistics investment is rising and the prime yield, currently standing at 5% in Amsterdam, moved in by 250 basis points over the course of the past five years.
Compared to the previous four countries, e-commerce in Ireland is not as mature but solid fundamentals are paving the way for strong future growth. While internet penetration rate (82%) is slightly below the European average (83%), the scale of the retail market is large. The volume of retail sales per capita ranks fourth amongst the 32 benchmarked countries.
According to Oxford Economics, total retail sales are expected to increase by 4.3% pa on average in the next five years. Savills says investors’ appetite for logistics in Ireland is rising fast hence the prime yield in Dublin moved in by 300 basis points over the past five years.