Improving economy will lead to more demand for logistics

An improving macroeconomic context will lead to more demand for logistics space across Europe, experts agreed at Real Asset Media’s European Logistics Real Estate Markets: Is Now the Right Time to Invest? briefing, organised in collaboration with Garbe, which took place online this week.

“There will be no leap forward but a more positive backdrop for the economy as interest rates and inflation go down,” said Oliver Rakau, chief Germany economist, deputy head Europe Economics, Oxford Economics. “Construction activity as well as industrial production will be boosted by the new low interest rate environment.”

Europe faces many challenges, from demographic headwinds to labour supply issues, but deglobalisation is unlikely, he said: “Opportunities abound even in a world marked by slowbalisation.”

As traditional growth drivers are exhausted, new ones are emerging. In a slowly improving economic context, technological advances and industrial production trends will provide momentum.

“As economic growth picks up, albeit at a slower pace, there will be more demand for logistics space,” said Tobias Kassner, head of research, member of the executive board, Garbe Industrial Real Estate. “The correlation between take-up and GDP is clear.”

Europe has been lagging behind the United States in economic growth, averaging +5% compared to 10%, and also in logistics take-up. Even in the top markets, Germany and the Netherlands, floor space per capita is 2-3 sq m, compared to 5 sq m in the US.

“We’re waiting for the pace of development to pick up,” said Kassner. “Europe remains a big consumer market and there are many demand drivers which will trigger additional take-up of logistics assets.”

The expansion and diversification of e-commerce has resumed, driven especially by growing demand in the food and fashion segments. New technologies and alternative energies such as battery cell production, semiconductors and electric vehicles are contributing to the change in market dynamics.

“I do not believe there will be de-industrialisation but rather a shift away from energy-intensive sectors like chemicals and automotive and a shift to pharmaceuticals and high-value added tech sectors,” said Rakau. “European companies are fast adapting to a changing environment.”

Another crucial factor for the logistics sector is the nearshoring trend to Southern and Eastern Europe and the re-thinking of supply chains.

“There is less friendshoring, importing from countries like Vietnam rather than China, and more nearshoring happening as the investments are materialising.” said Rakau. “We have seen a big rise in imports from Eastern Europe. Countries like Poland, Hungary and Romania are growing but they are still competitive so there’s a big incentive to relocate and invest there.”