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The European Logistics Market: What did 2018 look like and what’s in store?

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The logistics market is in a good place right now, having reached a level that has not been seen in over 15 years. The market has remained strong thanks to the effects of e-commerce and low vacancy rates which are at around 5% across Europe. Indeed, the market represent 14% of the total commercial real estate market in Europe.

E-commerce has had a huge effect on the logistics sector and it’s not surprising when the fact that online sales in Europe grow by about 12-14% each year, is taken into account.

As a result of this companies are seeking warehouse space that allows them to store, manoeuvre  and deliver their goods in the most efficient and productive way. This need to invest in storage facilities such as warehouses and factories is generating a huge demand, pushing the logistics market to develop at a faster rate than ever before.

The huge take-up of warehouses over 5000 sqm has meant that despite the lack of supply available, end users have turned to Build to Suit developments.

This has had an impact on rents which are now are rising as vacancy rates decrease, with 2018 seeing a rental increase of 4% across 38 countries in Europe.

As a result of the strength of the logistics market, investors are keen to capitalise, particularly drawn by the fact that logistics assets remain less expensive than prime offices or prime high street retail.

What can we expect for 2019?

As a result of the global economic situation and less domestic demand, BNP Paribas Real Estate expects that growth in 2019 will be around 1.4%. GDP will slow down across Europe, with Germany posting 1.5%, France 1.5%, Spain unchanged at 2.2% and Italy at 0.7%.

As Vincent Robion, Head Of Research Logistics Europe at BNP Paribas Real Estate outlines, “Despite a slowdown in the European economic environment, we are optimistic in terms of investment in logistics which we expect to remain strong in 2019”. 

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Despite a slowdown in the European economic environment, we are optimistic in terms of investment in logistics which we expect to remain strong in 2019

Vincent Robion
HEAD OF RESEARCH LOGISTICS EUROPE, BNP Paribas Real Estate
France

Job generation

With the expansion of the logistics sector and the growing number of warehouses that are being developed, it was inevitable that a new era of skilled jobs would arrive. Across many European countries including Germany, Poland and the UK we are seeing that a number of jobs are being created but there is a gap between the availability of the jobs and the skillset that is available in the labour force.

The latest Eurostat highlighted the issue further. They found that unemployment was at its lowest level since the report began. This means that it has its own challenges for the logistics market in some countries. For occupiers, having easy access to a skilled workforce is a vital component when choosing the location of a warehouse. Developers too are concerned by this as access to a workforce will enable them to deliver buildings in the most time and cost effective way.

This has been seen notably in Poland where occupiers and developers relied on immigration from Ukraine and Belarus to find workers. With jobs being so plentiful this supply is now running out and they are now forced to look further afield in Kazakhstan.

 

The European logistics occupier market

2018 was yet again an incredibly strong year, with some exceptional volumes of transactions, particularly in the UK, Germany, Spain and the Netherlands.

Focus on Germany

2018 was another record year for Germany in terms of logistics; transactions increased by 21%, reaching nearly 6.7 million sqm. As a result of the fact that the supply of large-scale modern space is limited, occupiers are opting for tailor-made solutions. Demand for these types of solutions has been focused mainly outside of the main city hubs, meaning rents are lower and new, tailor-made projects can be developed with greater ease.

Focus of France

The volume of transactions decreased in France by 14% from 2017 to 2018. This was particularly prominent as 2017 was a particularly successful year, especially for Greater Paris, where we saw take-up doubling because of XXL deals. Despite the decrease in transactions, 2018 remained a year that was still 20% above the 10-year average, highlighting the strength of the market.

Focus on UK

Despite uncertainty in the British economy over the last 18 months, the UK logistics market has held strong, take-up increased in 2018 by 27% equating to 3.7 million sqm.

Focus on the Netherlands

Take-up rose by 2.7%, reaching 2.8 million sqm. GDP growth in the Netherlands is estimated to be 2.7% in 2018 which resulted in all major occupier markets receiving a boost and recording a strong volume of transactions.

Industrial and logistics investment

Industrial and logistics investment

Investment in industrial and logistics is very robust and unchanging, representing 13% of the total commercial real estate market in Europe during 2018. The market has been thriving and investment volumes have doubled in just five years but there is a market constraint due to a lack of products available. The rise in demand can be attributed to the attractiveness of logistics prime yields.

This has generated a keen international interest by investors in the e-commerce sector and newcomers are entering the market, along with Asian investors looking to acquire logistic assets in Europe.

Focus on UK and Germany

The UK and German are leading the way when it comes to logistics and industrial investment in Europe. As 2017 was such a record year it comes as no surprise that their markets both saw a dip of 24% in the UK and 22% in Germany, these are however still the second highest levels ever recorded.

Focus on France

Volumes may have dropped by 31% in 2018 but the French industrial and logistics market remains strong. This is supported by the high demand for logistics and the competitive pricing available to investors.

Focus on the Netherlands

The Netherlands hit a record volume of industrial and logistics investment in 2018, totally 26% of the total commercial real estate market.

Source: European Logistics Market Property Report 

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