Record Q1 figures show that Logistics’ run is set to continue

The Logistics sector’s amazing run of the last few years is set to continue despite new economic and geopolitical headwinds, delegates heard at Real Asset Media’s European Logistics Investment Outlook briefing, which took place yesterday at Savills’ headquarters in London and online on the REALX.Global platform.

In 2021 take-up reached 40 million sq m in Europe, setting a new record, while investment volumes also set a new high of €62 billion.

Kevin Mofid, Director – Head of EMEA Industrial and Logistics Research, Savills

“In the first three months of this year 10 million sq m of leases have been signed, which is a new record for Q1,” said Kevin Mofid, director – head of EMEA industrial and logistics research, Savills. “It shows that occupiers are still competing for the best space in the market, which is pushing rents up.”

Another positive sign is the change in the “Amazon factor”: in the last two years the world’s largest online retailer alone accounted for 25% of all take-up.

“In Q1 this year, Amazon has accounted for only 3% of take-up, yet we have a new record, which shows how strong the level of demand is from an increasingly diverse range of occupiers and is clearly healthy for the market,” said Mofid.  

Vacancy rates tell the story: they are at 3.3% in continental Europe and at an all-time-low of 2.8% in the UK.

“They’re trending downwards in every market we cover,” said Mofid. “I don’t see a spec-led oversupply in the market anytime soon, so vacancy rates will stay low, which provides a level of comfort to the market, pointing to rental growth even at a time of economic volatility.”

The sector cannot underestimate the challenges it has to face now, after years of being pushed ahead by strong tailwinds. Every metric used to measure the market, from vacancy rates to take-up to rental growth, is at record levels, which may lead to fears that the only way from these highs is down.

“There’s never been a time before where so many external factors have conspired at the same time to amplify our market,” said Mofid. “But since Christmas headwinds have emerged and are gathering pace. So the question is whether this amplified state can continue.”

The problems range from geopolitical issues, such as: the war in Ukraine; to the continuing fall-out from Covid-19, especially in China, which is having an impact on global supply chains; to macroeconomic challenges, such as the rise in interest rates and soaring inflation, which is leading to stagflation.

“Consumer confidence has declined rapidly since the invasion of Ukraine and a recession usually follows,” said Mofid. “Building costs and project timescales are going up and we expect two more years of pressure on the availability of materials and labour.”

However, there is a silver lining for the logistics sector because these challenges have the potential to depress the level of development that would normally be expected. This would have a beneficial effect on the market and would keep the vacancy rate very low.  

The continuing increase in requirement levels also tells a positive story. “We track every requirement in the market and the rise in their number in Q1 this year is a good sign,” said Mofid. “We expect an elevated level of take-up in the next 12 months.”