Despite there being many conflicting headwinds and conflicting signals for the logistics market in Europe, so far this year occupier take-up is about 2% ahead of 2021 with 29 million square feet according to Savills’ European industrial and logistics research analyst Andrew Blennerhassett who made a presentation at Real Asset Media’s event European Outlook 2023 – Focus on Logistics, staged recently at the London office of law firm TaylorWessing.
The investment market has done well this year, he said, with about €42 billion in total in investment flows into logistics real estate assets, about 2% ahead of the record year in 2021.
“The crucial thing to keep in mind, obviously, is that logistics saw a massive boom during 2020 and 2021 due to E commerce and that has continued to push into H1, 2022,” Blennerhassett said.
He added that inflation is peaking in the US and UK following a sharp response in terms of policy but a slightly slower response from the euro area in terms of interest rate increases. As prices have risen there has been a sharp drop in consumer confidence. GDP has also fallen but interestingly in terms of the logistics market but retail sales have not seen a particular sharp dip.
In terms of occupier sentiment warehousing or logistics requirements for E commerce are about three times as intensive for logistics which implies there is more need for a wide variety of stock.
The availability of labour and economic uncertainty have risen to the fore in terms of what’s actually affecting occupies. Crucially, occupiers have moved away from the just-in-time model and are trying to increase the level of inventory they hold. About 38% of respondents were looking to increase the quantity of stock they hold and 31% want to diversify their supply chain.
“What’s really been interesting is this reshoring/nearshoring effect – about 28% of respondents are looking to bring their supply chains closer to their end markets,” he added.
The vacancy rate among logistics properties has continued to decline, Blennerhasset said. “What we find in the UK is that when vacancy is below 12% rents have never fallen,” he said. “There’s a lot of room to manoeuvre in the logistics market right now. There’s a lot of space for stock to come back onto the market without having a massively negative effect on rental growth.”
He said that rental growth is about 38% in Paris, 36% in Prague, 18% in Poland, 7% in Dublin and 6% at Schipol, in the Netherlands.
“We’re seeing strong growth in terms of prime rents, which contradicts what we’re seeing from more economics-based forecasts. What’s really driving rents at the moment is that critical and chronic lack of supply .”
“What we can see is a clear take-off in rents as vacancy rates start to decline further. And that shows just how important this impact is. As more occupiers compete for less space that drives prime rents,” he added. which in the inverse in the downturn. Given this chronic lack of supply run we would expect that to continue to provide some support for retnal growth