Property Report - European Logistics Market - February 2021

Take-up

Occupier Market fundamentals are healthy with low supply, robust demand and some restructuring of the supply chain because of Covid-19.  Market activity is forecast to increase in 2021 reflecting both an economic rebound and a strong potential of growth in the ecommerce sector.

• Take-up in 2020 increased by 14% in the 6 leading countries despite lockdown measures throughout the year.
• Supply is low with vacancy rates at 5.5% or less in most European countries. It is completely unlike the post global financial crisis in 2010 when levels of supply were high. Today the risks of oversupply are limited.
• Rents are expected to continue to increase slightly just above inflation. The combination of sustained demand and low supply will maintain some pressure on rents especially in prime sectors. 
   

Investment

Industrial and logistics investment has been more resistant (-2% in 2020) than other asset classes.
During lockdown in Q2 2020, yield decompression was anticipated across Europe. It did not happen and instead the resilience of the logistics market, compared to other asset classes, resulted in a compression of yields in almost all European countries. 

• Prime yields compressed during Q4 2020 to 3.35% in Germany, 3.5% in the UK, 3.8% in the Netherlands and 3.9% in France.
• Further yield compression can be foreseen for prime assets as the gap with long-term government yields is still significant, over 400 bps on average in Europe.
• Going forward we will see increased divergence in the performance of different logistics segments as the yield gap between Core and non-Core asset will widen.