Europe’s logistical strength: stable and sustainable growth

European logistics
Sustainability and ESG compliance are key drivers of logistics growth, exemplified by the Deltaport I in Wesel

Retail and e-commerce remain major drivers of demand for logistics space, but it is crucial to consider environmentally friendly solutions at an early stage, says Ingo Steves.

In recent years, the logistics asset class has established itself as a cornerstone for many European investors. The e-commerce surge during the pandemic heightened the attractiveness of logistics real estate in particular. Although this boom has normalised, the critical role of efficient supply chains, particularly during crises, has become even clearer.

Retail, alongside e-commerce, remains a major driver of demand for logistics space. The industry is continuously adapting its networks to boost efficiency and meet rising customer demand. Modern, energy-efficient spaces are essential for the ongoing automation and optimisation of site networks. These trends also impact the manufacturing industry, necessitating regular supply chain adjustments and optimisations. Despite high interest rates and construction costs, these evolving needs ensure sustained demand.

But the demands placed on the logistics industry have also changed significantly. The growth in expedited services, such as same-day delivery, is putting pressure on logistics companies and underlines the importance of urban logistics centres responsible for last-mile delivery. However, this momentum and rapid developments in the industry mean real estate must adapt continually to meet evolving operational needs. It is therefore crucial for investors to stay abreast of these changes and ensure their properties align with the highest standards.

European logistics markets: resilient amid challenges

The European logistics property market has remained extremely stable in recent years, despite various challenges. Transaction volumes may have dipped across many asset classes, but vacancy rates remain low. According to BNP Paribas1, vacancy rates in May this year remained below 5% in most European countries.

In Europe, Germany stands out as a central player in the logistics market. The country benefits from its strategic location in the heart of Europe and a first-class transport infrastructure that makes it a hub for freight transport. Here, too, the market’s resilience is evident.

According to CBRE Research2, average prime rents for logistics properties rose to €8.71 per square metre per month in the second quarter of 2024 – an increase of 6.3% compared with the same quarter the previous year. In addition, investors are still focused on the German logistics real estate market because of its size.

European logistics
Demand for modern, sustainable logistics real estate is growing

The logistics sector in France has proven to be extremely resilient as well. Industrial and logistics real estate weathered the difficult operating conditions since the pandemic much better than retail and office properties.

According to BNP Paribas, prime logistics yields were stable at 4.75% in the first quarter of 2024, while the vacancy rate was only 3.3%. France’s central role as a logistics hub in Western Europe, especially for the e-commerce sector, makes it a hotspot for investors.

Investors are looking to Central and Eastern Europe. In addition to offering lower-cost properties, these regions benefit from the relocation of production facilities and growing demand for logistics space from international companies.

Thus, Europe’s logistics real estate market remains promising for investors despite broader economic challenges.

Investing in efficiency and the environment

A key driver of growth that investors across Europe should keep an eye on is the sustainability and ESG compliance of real estate. More and more companies are setting their own sustainability goals to reduce emissions, shrink operating costs and improve their image.

As a result, demand for modern, sustainable logistics hubs is growing, while more older properties experience vacancies. Early investment in sustainable features is proving advantageous for developers and investors.

Ingo Steves, Swiss Life Asset Managers

At Swiss Life Asset Managers, we prioritise ESG measures to ensure the long-term sustainability of our properties. One example is our logistics centre north of Zwickau, which has a comprehensive energy concept: a photovoltaic system will be installed which, combined with modern heat pumps, enhances the building’s environmental footprint.

Similarly, our logistics centre at the Rhine-Lippe port in Wesel, north of Duisburg, attaches great importance to consistent alignment with ecological sustainability goals. This property is operated independently of fossil fuels, using an energy mix of photovoltaics, geothermal energy and heat pumps. This enables the building to be completely CO2-neutral. These sustainable energy sources not only provide environmental benefits, but also lead to significant operational cost savings for tenants.

ESG-compliant real estate: Future-proof investments

Despite the economic challenges in Europe, the logistics asset class remains an attractive investment opportunity. Especially in times of increasing demand for sustainability and ESG-compliant real estate, it is crucial to consider modern and environmentally friendly solutions at an early stage. Investors who recognise these trends and invest in sustainable measures can benefit from market opportunities in the long term.

Ingo Steves is managing partner for logistics at Swiss Life Asset Managers

More information: https://swisslife-am.com/logistics

Sources:
1 BNP Paribas – European Logistics Market – May 2024
2 CBRE News (15.07.2024)

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