Activity in European logistics markets set to pick up ‘soon’

Investments in the logistics sector hit rock bottom in 2023 and are set to pick up this year, delegates heard at Real Asset Media’s Transport Logistic: The Future of European Logistics Real Estate, which took place online yesterday.

Inga Schwarz, Head of Research, BNP Paribas Real Estate

“As confidence returns to the CRE market, we are sure we’ll see more activity in the next few weeks and months,” said Inga Schwarz, head of research, BNP Paribas Real Estate Consult. “The logistics sector has been able to adapt quickly to the new environment.”

The investment market reached its lowest point last year, but in 2024 there have been clear signs of improvement. Industrial and logistics investment volumes decreased by just 4% in Q1 2024, compared to Q1 2023 to €7.1 billion, while total CRE investment fell by 10% in the same period to €33 billion.

The UK alone represented one third of total industrial and logistics investments in Europe in the last 12 months, while CEE countries, the Netherlands and France saw a marked decline.

“Industrial and logistics is maintaining a strong market share against other assets,” said Schwarz. “Investment shifted from 16% in 2017 to 24% of total commercial real estate in Q1 2024. European logistics markets are still adjusting and the strong pricing correction that occurred in most markets should unlock investment activity in the next few quarters.”

The context is favourable, as market fundamentals remain healthy, economic activity is picking up, inflation is on a downward trend, the ECB is expected to start lowering interest rates in June and yield decompression has come to an end, with prime yields stabilising for the first time in two years.

“We see a more resilient economic scenario in 2024 and further improvements in 2025,” said Schwarz. “There are many signs of a turnaround.”

Source: BNP Paribas Real Estate

The letting markets have held surprisingly well, with take-up declining by 27% in Q1 2024 compared to Q1 2023 in the leading European countries. The lack of new product and increasing pressure on land availability continue to create an upward trend in rents, although the pace is likely to slow down.

“It has been a slow start to the year, but e-commerce remains crucially important, as online sales increased by 47% in the EU in the last five years,” said Schwarz. “This will be a major driver for the logistics sector going forward.”

The penetration rate in the US is 15.6% of total retail sales, compared to only 11% in Europe. But there are huge differences between countries, with the UK at one end of the spectrum with a penetration rate of over 27% and average annual online spend of €1,948 per capita.

At the other end there is Italy, with an annual spend of just €594 per capita, which in the last five years has recorded the strongest growth in e-commerce sales (+98%), although off a low base. Hungary, Portugal and Poland have seen increases above 80%.

“In Southern and Central European countries, the number of people shopping online is well below the European average, but also showing some of the highest rates of growth,” said Schwarz. “Across Europe, structurally, online sales still offer strong potential for growth, which is good news for the logistics sector.”