LOGISTICS DEMAND EXPECTED TO HOLD UP

Despite being much better positioned than most other sectors, logistics has not been immune to the impact of the pandemic. The main sources of demand have been affected, with both positive and negative lasting consequences for logistics property. Ecommerce sales, the main demand driver over the last few years, have seen a spike in activity due to lockdowns and will emerge from the crisis at a significantly higher level, leading to a further uptick in logistics requirements from this sector.

While global trade was already threatened by protectionist disputes and Brexit heading into 2020, the pandemic has worsened conditions, as evidenced by the increase in idle capacity reported by ocean freight companies. Although the manufacturing sector has been hit hard, the reopening of production plants has increased the focus on how to improve supply chain resilience to avoid future shortages. This trend could potentially benefit logistics property via increased demand for space to increase safety inventories and re-shore suppliers in Europe. 

FIGURE 21: ECOMMERCE PENETRATION FORECAST WESTERN AND EASTERN EUROPE

Source: Euromonitor, Forrester and CBRE, July 2020.

FIGURE 22: GLOBAL TRADE EXPORTS GROWTH FORECAST: SINGLE AND DOUBLE HIT SCENARIOS (2007 = 100)

Source: OECD, July 2020.

LOGISTICS DEMAND DRIVERS

SUPPLY IS TIGHTENING

Take-up in tier 1 markets in Europe was stronger than expected in Q2 2020 considering the challenging conditions, particularly in the UK, where take-up registered an all-time high. This provided further proof of the overall resilience of logistics demand. Demand came in the form of new pre-let units but also ready-to-occupy facilities, further tightening the already scarce supply of new warehouses. Additionally, approximately 70% of the development pipeline for 2020 was already committed via pre-lets and built-to-suit units, meaning that there will be stiff competition among occupiers for space in speculative developments due to be completed this year.

*Tier-1 European Logistics markets are Germany, France, the United Kingdom, the Netherlands, Italy, Poland, Spain, Belgium and the Czech Republic.

FIGURE 23: TAKE-UP AND NET ABSORPTION TIER-1 EUROPEAN LOGISTICS MARKETS* (M SQ M)

Source: CBRE Research, 2020.

FIGURE 24: COMPLETIONS AND VACANCY RATE TIER-1 EUROPEAN LOGISTICS MARKETS* (M SQ M)

Source: CBRE Research, 2020.

PRIME RENTS EXPECTED TO RISE

The strength of the logistics sector is also evident in CBRE’s headline prime rental forecast for the main submarkets. Most locations are expected to show no change during 2020, in contrast with most other property sectors.

In the long-term, the annualised growth forecast remains positive for all locations, with further upward pressure in those markets with severe restrictions on land and stock availability, such as London and Munich.

FIGURE 25: LOGISTICS HEADLINE PRIME RENTS FORECAST

Source: CBRE Forecast, June 2020.

INVESTMENT MARKET SET TO BOUNCE BACK STRONGLY

Prime logistics yields are expected to be stable and, in most cases, remain at historical lows. Strong occupier demand is generating robust investor interest, with some groups looking to increase their exposure and others seeking to enter the sector for the first time. Many investment opportunities will be derived from anticipating occupier needs and understanding customer strategy, especially around desired improvements in supply chain resilience.

Logistics is well positioned to continue to outperform most other sectors, supported by strong fundamentals and reinforced occupier demand. Developers looking to capture forthcoming demand are expected to accelerate the construction of new projects. Other opportunities lie in repurposing well connected retail parks close to cities and refurbishing units to accommodate on-demand warehousing.

FIGURE 26: LOGISTICS PRIME YIELDS FORECAST

Source: CBRE Forecast, June 2020.

Key Takeaways

Opportunities in the logistics sector emerge from the resilience of the occupier demand and the needs to: