MIPIM: logistic sector strong but barriers getting higher

The logistic sector’s fundamentals are as solid as ever but barriers are getting higher, delegates heard at Real Asset Media’s MIPIM Investment Track – European Logistics Investment briefing, which took place in Cannes yesterday.

“Despite macroeconomic volatility the sector is strong and we’re not seeing a slowdown but a return to moderation after the records reached in 2021,” said Dirk Sosef, head of research and strategy, CTP.   “However, land scarcity and regulatory obstacles are creating supply problems.”

Vacancy rates are still close to historical lows and demand from tenants is still high, but there is a noticeable slowdown in developments. This is partly due to economic uncertainty and rising construction costs but also to the time it takes to obtain permits to develop an industrial and logistics facility. In Western Europe the waiting time ranges between 20 and 35 months.

“The demand side is still strong as companies want to make their supply chains more efficient, and we’ve seen stronger rental growth in the last year than in the last twenty years,” said Frank Porschke, CEO, P3 Logistic Parks. “There’s a negative impact from higher interest rates, but now there are more attractive opportunities in the market that were not there before, so we continue with our expansion strategy.”

Market players are struggling to adapt to the new interest rate environment and this is slowing down activity.

“Actually the last ten years were an unhealthy aberration, but low interest rates went on for so long that we thought it was normal,” said Christopher Mertlitz, managing director, head of European investment, WP Carey. “Europe is now in a transition phase and reluctant to accept that higher interest rates are the new normal, but once it does then activity will resume.”

Interest rates are only part of the picture, said Wilm Schwarzpaul, managing partner, ecoParks: “Construction costs are even more of a barrier in determining development decisions.”

It is a time of volatility, economic uncertainty and transition in the market, but the long-term fundamentals of the sector remain strong.

“Investments are on hold and 2023 will be a difficult year, but in the long run the logistics sector will outperform,” said Laurie Lagarde, head of EMEA logistics, CBRE Investment Management. “Rents are growing almost everywhere, which shows tenant demand is strong, and the nearshoring trend is really picking up”.

The lack of new developments, whether due to costs or regulation, is making existing assets all the more sought-after.

“The difficulty of building new product will drive rental levels and values as well,” said Wulf Meinel, founding partner, StoneVest.