Online retail continues to be the main, but not the only, driving force behind the success of logistics, experts agreed at Real Asset Media’s European Logistics Investment Outlook briefing, which took place this week at Savills’ headquarters in London and online on the REALX.global platform.
Around 60% of occupier demand comes from the retail sector in Europe and it has been growing.
“On the demand side all tenants are in expansion mode”, said Mehdi Bourassi, Director of Finance, Tritax EuroBox. “The shift to online shopping and the omnichannel trend are definitely leading to more demand”.
Current forecasts are that online retail in Western Europe will grow and reach 25% of total retail sales by 2025, which would require an additional 26.3 million m2 of warehouse space. The economic and geopolitical upheavals of the last few months might change the timeframe slightly, but the overall picture remains the same.
“The outlook has not changed”, said Kevin Mofid, Director – Head of EMEA Industrial and Logistics Research, Savills. “That 25% target might be reached later, in 2026 or 2027, but we’ll get there. Ukraine may have slowed things down, but it has not halted growth. The trend is still up”.
There has been an inevitable slowdown because of economic volatility and increasing costs, as the sector is closely linked to the economic cycle, but the long-term trend is still in favour of online retail.
“Amazon is working on the assumption that online retail will get to 50% of total retail sales at some point”, said Mofid. “There’s total confidence that online retail penetration rates will continue increasing. It’s just a matter of time”.
The sector is not immune to current challenges such as soaring inflation, interest rate rises and economic slowdown, but it is better placed than most.
“The physical retail sector is far more exposed to a recession than e-commerce”, said Marcus de Minckwitz, Head of EMEA Industrial & Logistics, Savills.
Continental Europe is seeing the e-commerce-led growth that the UK had six or seven years ago. “But the big difference is that vacancy rates were at 12% in the UK then, while they are just above 3% in Europe now, so there’s a real pincer movement”, said Mofid. “Rental growth forecasts in Europe really undervalue the relationship between supply and demand”.
Demand for warehouse space is being driven by the trend for higher inventory levels, which is here to stay as supply chain, inventory resilience and security are big themes for investors who want to minimise risk.
“All the mood music is pointing to onshoring and nearshoring”, said Mofid. “Bringing manufacturing back to Europe creates a ripple effect. Every £1 million invested creates an additional 16,300 m2 of warehouse space. So the story about logistics is not just about online retail”.