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Logistics sector fundamentals stronger than market jitters

Occupational fundamentals are underpinning the logistics sector despite economic uncertainty and market jitters, experts agreed at Real Asset Media’s Logistics Global Trends briefing, which took place recently at EXPO Real in Munich.

Nick Cripps, Head of Capital Markets UK & Director Capital Markets Europe, Panattoni

“There is a strange dichotomy now,” said Nick Cripps, head of capital markets UK & director capital markets Europe, Panattoni. “The occupational markets are very robust and the supply/demand dynamics very strong, but the investment market has changed.”

Geopolitical turmoil, the energy crisis and the economic slowdown in most of Europe are taking their toll and making investor wary.

“The occupational story continues to be strong and is driving rental growth, but the capital markets have been negatively impacted by volatility,” said Christina Forrest, fund manager, CBRE Investment Management.

The sense of unease is compounded by the uncertainty over timing, as no one knows how long the current crisis will last.

“The market’s definitely changed and every day is a new page,” said Karolis Adlis, executive director European Investments, WP Carey. “As an investor we must re-calibrate and assess the implications of the prospect of recession in parts of Europe.”

Christina Forrest, Fund Manager, CBRE Investment Management

Capital flows are being affected in the short term, but investors with a longer term horizon will focus on the fundamentals of logistics as an asset class.

 “For a long time the capital markets were ahead of the occupational markets, but now it’s the other way around,” said Cripps. “But capital is still buying into the prospects of the sector, because the occupational fundamentals make a compelling case. The occupational market is on a solid footing despite the slowdown in consumer demand in difficult economic circumstances.”

Across Europe, the big positive is the rental growth story, which is driven by demand. Behind growing demand for logistics assets there are two factors: the e-commerce trend and the more recent nearshoring trend to reconfigure and optimise supply chains.

“Nearshoring is the principal driver in Europe now, with a bit of a lag after the pandemic,” said Cripps. “Companies are reorganising supplies and building efficiencies into supply chains by moving them away from autocratic States, be it Russia or China. We’re talking about a 10-20 year horizon, a long term shift rather than a short term trend.”   

In some areas the geopolitical situation is having a negative impact on nearshoring.

“We had big hopes about nearshoring because CEE is so competitive on labour costs, but it’s not so easy,” said Renata Osiecka, managing partner, AXI IMMO Group. “We have a war on the border and the atmosphere has changed. Things are complicated, transactions take longer and companies are having trouble sourcing components.”

Yet even in these difficult circumstances “the occupier markets remain strong and the most surprising factor in CEE has been rent increases, which the market has accepted”, she said. “Logistics has fundamentals on its side.”