European Logistics Census ’24: ESG top of occupiers’ concerns

ESG considerations have risen to the top of occupiers’ concerns in the logistics sector, according to the findings of the European Logistics Real Estate Census 2024, commissioned by Savills and Tritax EuroBox and conducted by Analytiqa, which has just been published and was presented in London at an event organised with Real Asset Media.

“The growing importance of ESG is really shining through,” said Kevin Mofid, head of EMEA logistics research, Savills. “Occupiers see it as the main game changer for the sector this year.”

More stringent ESG targets and regulations were cited by respondents as the most important issue they are facing, closely followed by increased power requirements, due in part to the ever-increasing use of advanced automation, AI and robotics. Advancing technology is powering energy resilience concerns.

There is ongoing uncertainty about the scope of future EU environmental regulations, especially for the 3PL (third party logistics) sector which, when bidding for contracts, is facing increased pressure from clients to ensure their operations meet higher ESG standards.

For developers, the supply of power to new projects is one of the biggest concerns, just behind the length of the planning process and the lack of development sites in many European countries.

This year saw the biggest ever response to the survey, which has reached its fourth edition, with over 640 occupiers, investors, asset managers and developers providing their opinions and outlook on the European logistics market.

In H1 this year the macroeconomic headwinds that led to declines in take-up and investment volumes abated, economic growth is on an upward trajectory and sentiment has improved.

As inflation has fallen “consumer confidence is now robust, and that’s crucial for the logistics sector”, said Mofid. “It’s important to remember that two-thirds of occupier demand comes from retailers in Europe, so the health of the retail economy is key.”

Investment volumes in Europe have increased by 24% to €16.5 billion in H1 2024 compared to H1 2023, and the expectation is that they will reach the €40 billion mark by the end of the year.  

“The structural story for the sector remains strong: 24% of all investments in Europe were in industrial and logistics in H1 this year, the highest percentage it’s ever been and higher than any other asset class,” said Mofid. “We can see a positive outlook for the sector.”

Occupier sentiment has also improved and they are still in expansion mode, albeit at a slower pace than in the past. Caution still prevails and expansion plans have been scaled back or delayed, but 70% of occupiers plan to retain their current footprint, while 29% intend to take more space in the next 12 months.

“Occupier demand rebounded beyond expectations in Q2 this year, reaching 7.4 sq m, +10% on Q2 2023, and 13.6 sq m in H1,” said Mofid. “In the UK in H1 the increase was 44%, which is a good sign because the UK usually takes the lead and Europe tends to follow.”

Survey results show that most respondents expect take-up in Europe to reach 25-30 million sq m by the end of the year. Vacancy rates have risen to 6% in H1 2024, but with big variations across markets. An interesting development is that “we are seeing a decoupling of the historic relationship between vacancy rates and rental growth, which is an anomaly,” said Mofid. “Higher vacancy rates are not leading to lower rents, in fact rents will continue to rise this year.”