Outlook for European logistics real estate: sunny with a few clouds

logistics real estate

Demand for logistics real estate (e.g. warehouses and distribution centres) will continue to grow over the next three years, fuelled by moderate economic growth and a further acceleration in e-commerce revenues. This sunny outlook is forecast in a new report based on research by Buck Consultants International, called The Future of Logistics Real Estate in Europe, which was unveiled on 13 March at the MIPIM Real Estate Conference and Exhibition in Cannes, France. There are also a few clouds on the horizon, however, including Brexit in the short term and the rising number of trade disputes around the world in the longer term.

Investment in logistics/industrial real estate in Europe has reached a record high over the past three years as the return on investment in logistics space (6%) has performed better than investment in office space or retail real estate (4-5%). René Buck from Buck Consultants International (BCI) expects overall rents of warehouses to increase and yields to come down from now on.

“However, the regional perspective is imperative; there are still substantial differences between logistics regions across Europe in terms of rent levels, vacancy rates and yield,” he explains. “But that also offers opportunities for developers and investors. The importance of agile supply chains for companies is increasing, but the network design differs considerably between sectors of industry. That means that the logistics real estate industry has to respond by better addressing the rapid changes in customer requirements for more flexible, sustainable and automated and robotized warehouses.”

Labour availability

Overall, the sustained rise in demand across Europe means less choice for companies looking to lease buildings or acquire plots of land, as property availability decreases and logistics hotspots are struggling to develop new logistics hubs quickly enough. “Labour availability has become a critical location factor for manufacturing companies, e-tailers and logistics services providers when considering a new distribution centre,” continues René Buck. That is why his company has developed a new Regional Labour Market Assessment Tool to give detailed insights into the labour markets of logistics hotspots all over Europe.

In terms of the clouds on the horizon, the BCI teams around the world are particularly concerned about the growing number of trade disputes globally: “Over the next five to ten years, intensifying trade disputes between the major trade blocs in the world (US, Europe, China and Asia) could substantially hurt the logistics real estate market,” he cautions.