Logistics Investment: Timely or Time Out?

Samuel Duah, Head of Real Estate Economics, BNP Paribas Real Estate UK pointed out that because of the geopolitical tensions in Europe, the slowdown of the Chinese economy and rising energy prices, the European economy is facing a number of challenges, which are undeniably affecting the real estate market and in turn logistics. 

The US market in comparison to Europe faces less of a shock, as it appears to be holding up well, whilst for Europe the likelihood of a recession appears to be inevitable. Across the continent, with energy prices being affected by inflation, the response to how this will be managed has varied with the UK consumer taking on the rising prices. 

Focusing on a positive trend, the high level of job and low unemployment is being witnessed across Europe. 

Vincent Robion, Head of Research Alliances & Logistics Europe, BNP Paribas Real Estate, spoke about the trends and economic situation which the logistics market is currently experiencing. Describing the record level of take-up in H1 2022, which is particularly remarkable when compared to 2021 which was until then the highest level witnessed. This in turn has meant that the logistics market is experiencing very good, dynamic activity.

Within Q2 of 2022, there has been some changes in activity as logistics enters a new pivot period of time. With a slowdown in take-up and investment, an acute lack of supply pushing rents upward, inflation and bond rates on the rise we arebeginning a period where we are likely to see a decompression in investment. 

Take-up across Europe has inevitably varied, with Germany, Spain and Poland seeing no slowdown compared to the UK, France and Netherlands, which have all seen a reduction in activity. For many countries, an acute shortage of supply has affected the vacancy rate with Germany, the UK and France experiencing vacancy rates below 4%. 

Vincent Robion went out to explain that, for logistics, the main driver of the market remains e-commerce. With increasing consumer interest for e-commerce, each country has seen rising rates of online sales. There are however differences in the spending of consumers across the continent. Online sales per capita in Spain and Italy are around €350 euros a year, whilst in the UK it is more than €2,000. This means that the potential in southern and central countries is very interesting and in turn can lead to a potential for growth and greater demand for warehouses. 

In terms of investment potential, the market is experiencing strong demand, with logistics above retail for investor demand since 2020, taking up 24% of investor demand in Europe in Q2 2022 compared to 14% for retail.

Whilst demand is strong, the increase of government bond yields means that the first signs of decompression are being observed and we are entering into a period of change for the market.
 

The logistics sector has held up well throughout the year, in spite of a number of social, political and economic factors, supported in large part by the demand for e-commerce. This is turn can lead to cities being redesigned and structured to adapt to greater infrastructure needs. 

With environmental concerns affecting how occupiers view buildings, there are also questions about the upgrading of buildings and how obsolete buildings can be brought back into the market.

These varying factors and new investor and occupier concerns are likely to affect the very structure of the logistics market. As the market embarks on a new period of change, opportunities for new interactions and dynamics are inevitable and the strength of logistics will once again be tested.