It is back to basics for the logistics sector this year after a difficult 2023, delegates heard at Real Asset Media’s European Logistics Property Markets: Has the Investment Market Bottomed Out? briefing, organised in collaboration with Garbe, that took place online recently.
“I am positive on logistics across Europe because the fundamentals are solid,” said Dr. Peter Bartholomäus, member of the executive board, fund management and capital markets , Garbe Industrial Real Estate. “Stability will return as interest rates go down.”
Last year saw a polycrisis, with macroeconomic factors weighing on the sector, investment volumes shrinking and take-up declining. However, rental growth is still happening, not at double digits as in the recent past but still above inflation rates.
“Many European markets are pretty close to the bottom,” said Bartholomäus. “Typically, core capital tends to wait rather than set the trend, so it will take time before it enters the fray again, while more aggressive investors will act now. From today’s perspective though there’s definitely a risk of missing the beginning of the upturn.”
Too much caution is not always a good thing, but there is still uncertainty in the market on the timing and speed of the recovery. Even if there are interest rate cuts this year, as expected, it will take time for the benefits to filter through to the real economy and lead to a rebound. The lag is usually 12 months or more.
“I think 2024 will stay subdued and the market will kick off again next year,” said Tobias Kassner, head of research, member of the executive board, Garbe Industrial Real Estate. “The geopolitical aspect is interesting, as there are so many elections this year which could have a major impact on global supply chains and how they work. There are threats, but also opportunities like reshoring.”
The crisis in the Middle East, and the recent attacks on ships in the Red Sea, will be an incentive for companies to shorten their supply chains and move closer to their customers in Europe, said Kassner, and this will benefit logistics companies.
Looking at individual markets in Europe, “the Czech Republic is definitely the place to be,” said Bartholomäus, because of its proximity to German industrial production sites. Demand stays high, with vacancy rates at 1%.
In Poland high interest rates have made financing more difficult so there is less speculative development taking place, but the CEE region continues to have the advantage of ‘younger’, more recent and more ESG-compliant stock.
“Italy, especially the area around Milan, is seeing strong tenant demand, as are many areas of France,” he said. “There’s a sense that things are getting better.”
The UK market, which is always the first mover, has seen vacancy rates increase, as has Spain. “They’re over 5% in Barcelona for the first time in ten years,” said Bartholomäus. “But in Spain, as in Italy, internet penetration is still very low by European standards so e-commerce has more room to grow.”