According to Savills, the three core issues which will influence the logistics sector into the second half of 2019 and beyond are:
- Logistics costs are rising, notably land values. Land availability is shrinking and development activity is hardly meeting the demand and is pushing all prices up. Additionally, same day delivery, which is becoming the norm, requires logistics centres to be located close to shoppers. Industrial zoned-land, especially near cities, is hard to come by and commands a significant price premium.
- The sector suffers from a shortage of qualified staff. Unemployment rates across Europe have fallen quite significantly over the course of the past few years. The modernisation of the logistics sector, notably going through automation, is also requiring new skilled labour.
- The logistics sector is increasingly criticised for its negative environmental footprint. Recent protests around the globe suggest how imperative it is for the industry to take a step towards improving its green credentials.
Lydia Brissy, Director, European Commercial Research, Savills, explains:
“The US-China trade war, the resurgence of financial turbulence in Italy, the ‘gilet jaune’ protests in France and the uncertainties surrounding the outcome of Brexit all undoubtedly have had a negative impact on consumer psychology. However, retail sales which grew by 2.2% last year are still expected to rise by 2.1% per annum until 2020, backed by the improving labour market, increasing wages across Europe and low inflation environment.
“At the same time, e-commerce is forecasted to increase by 8.5% and 9.5% this year and the next, as the convenience of the digital world is rapidly influencing consumer habits. The e-commerce impulse will continue to have a positive knock-on effect on the logistics and CEP industries, which in turn will inevitably result in growing occupier demand.
“Over the past two years, the total volume of logistics investment in the 32 countries covered in this report, increased by approximately 12% annually. We expect this trend to continue throughout 2019 as the strong performance and bright outlook of the sector are a magnet for investors, especially those seeking to step away from strong ‘office exposure.”
Savills predicts that prime logistics yields will keep hardening in most European countries, except in Norway where they are expected to soften and in the UK, Germany, France, Netherlands and Italy where they are expected to remain stable. The sector will remain competitive compared to other asset classes. In fact, logistics is the only prime commercial asset offering yields above 5% in certain European countries.
According to Capital Economics, on average across the European countries, industrial total returns outperformed all properties by 297 bps last year. This outperformance is expected to reach 331bps in 2019 and 279bps in 2020.
Based on Savills’ index, Savills believes Germany, France, the UK, the Netherlands and Ireland provide an ideal combination of solid e-commerce fundamentals and logistics bases, triggering substantial opportunities in their respective market.
But as internet usage and online purchases are rapidly spreading across all European countries, an important shift in logistics will follow in all large European consumer hubs and eventually into tier 2 and tier 3 cities when e-commerce will have reached maturity and Generation Z will lead the consumers world.