Despite current challenges there are still more positives than negatives for the logistics sector, delegates heard at Real Asset Media’s Trends 2022: The European Logistics Real Estate Census 2022 presentation, that took place this week at Savills’ headquarters in London and online on the REALX.Global platform.
“The tailwinds are stronger than the headwinds for the logistics sector,” said Kevin Mofid, director, head of EMEA industrial and logistics research, Savills. “But the situation is volatile and winter will be tough.”
2021 saw record take-up of 38 million sq m in Europe, while investments in the sector reached a record of €62 billion, an increase of 79% over the five-year average.
This year started on a high, with over 20 million sq m transacted in H1 2022, according to Savills figures. Take-up has shown some interesting trends, with Germany (22% of the total) and the Netherlands (18%) in the lead but also very strong performances from Poland (17%) and the Czech Republic (7%).
“It’s been a very strong start to the year, with no drop-off in occupier demand,” said Mofid. “It will be interesting to see how the trend develops in Q3 and Q4, as there is no guarantee that deals will continue at this rate.”
A look at vacancy rates allows some optimism. The average rate in Continental Europe is 2.9%, with many markets well below that figure.
“In the UK, when it was at a similar stage of the cycle, the vacancy rate was 12%,” said Mofid. “Now double-digit vacancy rates are not remotely possible, not even in a period of economic volatility.”
The other cause for optimism is that demand for logistics space continues to rise. The sheer weight of capital targeting European logistics has compressed average prime yields by 23bps to 4.08% over the last six months.
“Yet rental growth forecasts are +1.6%,” said Mofid. “They consistently undervalue the relationship between supply and demand. Forecasts underestimate rental growth, which has consistently outperformed and will continue to do so.”
Building costs have increased and project timescales have increased. It is also harder to get financing.
Due to all these factors combined, “we’re already seeing less speculative development,” said Mofid. “So vacancy levels will fall even further, which means that rents will go even higher.”
The nearshoring trend is also benefitting the logistics sector as geopolitical uncertainty and supply chain issues are driving companies to move closer to their customers.
“In the last 6 to 12 months we’ve seen nearshoring exploding in companies’ annual reports,” said Mofid.
E-commerce has halted its rise as the economic situation is so serious, but the long-term trend is up, he said: “The consumers of the future have grown up with online shopping. It’s a simple question of demographics.”