Just when you thought Logistics could go no higher, the sector is set to reach new peaks. New figures from Savills and the results of the first European Logistics Real Estate Census, presented exclusively by Real Asset Media, point to the continued success of a sector that has thrived during the pandemic.
¨We´ll have another record year for Logistics in 2021,” said Kevin Mofid, director, head of industrial & logistics research, Savills. ¨H1 figures are very high.”
European logistics take-up reached 18.3 million sq m in the first six months of this year, 60% above the half year average. Logistics investment reached a record €22.5 billion in H1, a 60% increase on the H1 five-year average.
¨After a 2020 during which all economies contracted, now growth has returned, in some countries more than in others, and the high levels of economic activity are driving higher levels of warehouse demand,” he said.
Savills estimates that for every £1 billion manufacturing investment, this creates a need for 175,000 sq ft of warehouse space. Demand is set to rise in Eastern European countries and in the Netherlands, which is seen as the gateway to Europe.
The best performing countries in H1 2021 were Poland, which recorded a 102% increase in take-up, the Netherlands (+64%) and Germany (+26%). The UK accounted for 37% of deal volumes and saw a strong rise in logistics investment (+115%). The increase in investment volumes was most marked in Spain (+212%), followed by the UK, then Ireland (+108%) and the Netherlands (+66%).
Supply chain issues create new demand
¨Supply chain issues are creating new demand for warehouses in mainland Europe as well as in the UK¨, said Mofid. ¨As demand is at record levels, the question now is where is this going to lead us? We expect even higher levels of demand¨.
Online retail has been boosted by the pandemic in all countries, with the UK´s penetration rate reaching 28%.
This trend is set to continue, said Mofid: ¨In some countries online retail is forecast to double by 2025 and across Europe the average penetration rate will be 25%. We calculate that 39.3 sq m of additional space will be needed just because of the accelerated growth of online retail¨.
It is not all about online retail, as occupiers are also reshoring because of the changes in global supply chains, which will benefit Eastern European countries in particular.
As demand rises, vacancy rates are falling to an average of 4.6% across Europe and lows of 2.8% in Sweden.
¨With low vacancy rates, high demand, high investor sentiment and a lot of money being deployed, yields are being pushed down,¨ Mofid said. ¨We expect them to continue to compress across the Continent.”
The weight of capital targeting European logistics has compressed average prime yields by 45bps year on year, with the UK, France and Germany experiencing the largest compression.
In this context, rents are set to rise across Europe, by double digits in some countries. Around London, rents have been growing by 58% and the UK usually points the way.
¨We don´t see any reason why rents in Europe shouldn´t follow the same trajectory,¨ said Mofid. ¨We will see a prolonged period of rental growth.”