Savills Logistics RE Census 2023 a ‘surprise on the upside’

Despite the challenging macroeconomic backdrop there is a new confidence in the market that things are looking up for the industrial and logistics sector, delegates heard at the launch of the third annual European Logistics Real Estate Census 2023, which took place yesterday at Savills’ headquarters in London.

Kevin Mofid, Director, Head of EMEA Industrial & Logistics Research, Savills.

“The results of the survey were a surprise on the upside,” said Kevin Mofid, director, head of EMEA industrial and logistics research, Savills. “Occupiers in particular were more positive and optimistic than investors and developers.”

The survey, conducted by Savills in partnership with Tritax EuroBox and Analytiqa, canvassed the opinion of 256 key players in the sector, from occupiers to investors, from developers to consultants, from asset managers to landowners and from agents to advisors. Occupiers were the most represented category (43%), split into retailers, logistics and manufacturers.

Many occupiers believe the outlook is improving: 42% said that current business conditions are more favourable than six months ago, compared to 35% who felt the same way a year ago. While respondents in the broader property sector, such as developers and landowners, have become more pessimistic, occupiers seem to be more optimistic about the future.

“Consumer confidence at an individual level remains strong and this is important if you consider that two-thirds of occupier demand comes from the retail sector in Europe, although it varies from country to country,” said Mofid. “As the financial situation of households is trending up, so is the perception of the economic situation.”

The reason is that inflation seems to have peaked in Europe, with Spain and the Netherlands recording the sharpest falls. Perhaps it is not a coincidence that these countries are the top two choices for companies planning to expand: the survey shows that this year Spain has shot to the top of the rankings from 16th place in 2022, while the Netherlands is in second place, up from sixth. Germany, Ireland, France and Italy follow.

Across Europe, the new survey shows that occupiers are less concerned with rising costs than they were last year (43% in 2023 vs 60% in 2022). Economic uncertainty remains the second most cited factor that is affecting business, while concerns that were prominent last year, such as labour availability and warehouse space availability, have all eased this year.

As inflation slows, the hope is that the economic picture will improve. Interest rates, which have risen sharply and have been the main reason for the slowdown in investment activity, are expected to decline.

Economic turbulence has had a much greater impact on the investment market than on the occupier market. In H1 2023, investment volumes reached €10 billion, significantly lower than the H1 averages of €25.3 billion during the pandemic and €16.7 billion in 2017-2019, before Covid-19 hit.

However, the census suggests that volumes will improve, and over 70% of respondents stated they want to invest in the sector.

There are already positive signs: investment volumes rebounded in Q2 this year, rising to €6.3 billion. It is an improvement on a dismal Q1, but the figure is still 54% below that of the same period in 2022, when assets worth €13.7 billion were traded and also 36% less than the five-year quarterly average for Q2.

The question is whether the positive trend seen in Q2 this year will continue. “The timing of a pick-up in the market depends on interest rates,” said Mofid. “As inflation falls, then confidence will return. We hope and expect that things will settle by mid-2024.”