The dual indicators unemployment and consumer spending would traditionally be used to predict the path of demand in an economy. But during his presentation on European Logistics on the REALX.Global platform last week, Savills research director Kevin Mofid questioned whether these indicators can now be relied upon to forecast warehouse demand.
In the UK at least, online purchases now stand at 28% of the total retail spend. But as far as the logistics property segment is concerned, Mofid said that the effects of a fall in the overall level of retail spending could be offset by the increasing proportion of that which is spent online.
And yet, in the UK at least unemployment could take a decade to recover from its expected 8% post-covid peak, while consumer spending could take half a decade.
Mofid pointed out that in 2020, take up of logistics space in the UK was 50.1 million sq ft, an 80% increase on the preceding year. Meanwhile the vacancy rate had fallen to 5.71%. In 10 years takeup has increased by 127%.
Amazon accounts for about 25% of take up
In 2020 takeup of space built speculatively in the UK hit a record 10.8 million sq ft, the largest amount ever. Amazon comprises a large element of demand and accounted for about 25% of the take up in terms of space. In terms of number of deals, however, it represents about 11%. Meanwhile, third party logistics providers (3PLs) were responsible for nearly 10 million sq ft of take up.
And the trends seem likely to continue. In a recent survey undertaken by Savills 90% of respondents said that they would need more warehouse space within the next two years.
Mofid said the pattern of demand is similar over much of continental Europe where demand increased 8% year on year in 2020 to reach 30 million sq m. Not all European markets have performed in the same way and while the UK, Netherlands and Poland were all strong, demand was more muted in France and Czech Republic.
But a further positive factor is that the vacancy rate is so low. In the UK it is 5.7% while it is about 5.3% in Europe. Mofid pointed out that research indicates that rents never increase when vacancy exceeds 12%, so logistics seems to be comfortably in rental growth territory.The investment market for logistics property is correspondingly buoyant and in Europe increased 5% year on year in 2020 to reach €39 billion.
As more retailing switches to online channels, the demand for warehouse space will increase further and Mofid pointed out that once online retail accounts for more than 10.7% of total retail spending, demand for warehouse space starts to surge. He pointed too at Prologis research that states that every €1 billion increase in spending requires a further 750,000 sq ft of logistics.
Click here to see the full video presentation.