Core capital targets logistics again as sentiment improves
Core capital is being invested in logistics again as macroeconomic conditions and sentiment improve, delegates heard at Real Asset Media’s Trends 2024: the European Logistics Real Estate Census 2024, which was held at Savills’ offices in London recently.
“The post-pandemic shake-out is now complete”, said Henry Stratton, head of research, Tritax Management. “There is still caution, but also optimism in the market. Sentiment has improved and there will be more investment coming in the next twelve months.”
As the cost of financing comes down and availability improves, the time feels right to make decisions and get back in the market.
“More investors are coming to the market, more institutional players are looking for deals,” said Douglas van Oers, director, co-head industrial and logistics, Savills Netherlands. “In the Netherlands I&L remains the biggest sector and core capital is returning to the market, but we expect higher volumes all across Europe this year.”
In this transition phase it is the larger institutions that are likely to take the plunge first.
“Big players are back in the market, taking a forward-looking approach,” said Kyle Streitburger, head of investments, Sunrise Real Estate.
The difficult times have led to a growing differentiation between large companies that have the means to change their strategy and look beyond the short-term, and smaller companies that have to struggle with day-to-day problems.
“The top tier has done well, they’re running efficient operations and they are on the front foot in making medium-term decisions,” said Stratton. “In the mid and lower tier it’s a different story, because it’s trickier to make changes to their operating model, so the jury’s out on how they will fare.”
Experts agreed that more consolidation is likely in the logistics sector, as shown by Segro’s recent offer to take over Tritax Eurobox.
“Many of our clients are large corporations and they are driven by efficiency of operations and securing their supply chains, which means diversifying in different regions in and outside Europe, from Vietnam to New Mexico,” said Peter Schuijlenburg, head of real estate solutions EMEA, DHL Supply Chain.
Most investors as well as occupiers are targeting the main logistics markets in mainland Europe – Germany, France and the Netherlands – as shown by the responses to the European Logistics Real Estate Census 2024.
These key countries are where competition for land and assets is most intense, so occupiers are looking elsewhere. “It’s a learning curve for investors, who have to follow the occupier market but tend to lag behind,” said van Oers. “At the moment there seems to be a mismatch between demand and supply.”
Many tenants are turning their attention to other areas, from Southern Europe to the CEE region, second-tier markets where costs are lower and availability of space is better.
“We’ve paused investments in Poland since 2022 because of market fundamentals and not because of the conflict in Ukraine, which has been priced in by now,” said Streitburger. “Yet our Polish portfolio has performed really well, it’s been one of our best leasing markets for both renewals and new leases. However, we’re currently more focused on deploying capital in Western Europe.”
Across Europe rents keep rising despite higher vacancy rates, which makes the sector attractive for investors but creates problems for tenants.
“Last year the big theme was the resilience of supply chains, but this year there is more of a focus on efficiencies in the broadest sense of the word,” said Schuijlenburg. “Companies need to improve performance and reduce costs, and are turning to automation and digitalisation to compensate for higher rental costs.”