We operate in a sector with strong market fundamentals.
The European logistics market continues to see strong and growing occupier demand generated from a wide range of different business types, all driven by powerful structural trends. At the same time, supply of suitable logistics assets in the right locations is highly constrained and there are significant barriers to developing new stock to meet this demand, both in the short and long term.
The primary structural trends driving long-term occupier demand are:
1. The growth in e-commerce
The move to online shopping is one of the key drivers of occupational demand for large logistics assets. A sophisticated and modern supply chain is fundamental to the success of the omni-channel retail model. Retailers are increasingly reliant on very large, well located, flexible, modern, highly automated logistics properties, close to major population centres and strong transport links. This enables them to offer consumers access to their entire product range and then quickly, flexibly, and cheaply deliver those orders and manage returns, while also having the ability to add capacity as they grow.
The Centre for Retail Research (CRR) believes that Covid-19 has accelerated the growth in online sales, forecasting that online share of total sales will reach new highs in the six main Western European countries. Across Europe, 67% of people shopped online in 2021, up from 51% in 20161.
2. Optimising and future proofing supply chains
Even before the Covid-19 pandemic, many businesses were facing persistent pressure on their supply chains, making the efficiencies and lower costs offered by large flexible logistics buildings highly appealing. By consolidating into fewer, larger and more modern distribution assets, occupiers gain valuable economies of scale and the opportunity to automate processes which would not be possible in smaller, disparate properties, helping them to reduce costs and improve flexibility to meet growing demand.
The pandemic profoundly disrupted many supply chains, particularly in the early stages. Companies recognise that they now need to protect themselves from supply side disruptions in the future – either by relocating manufacturing and assembly closer to Europe from Asia, adopting the latest supply chain planning tools, reviewing manufacturing locations and transportation networks, or by holding more critical stock closer to customers and end users - to ensure that their supply chains are not only efficient but also resilient.
3. Occupying sustainable assets for years to come
Sustainability is increasingly central to our partner tenants’ corporate strategies, reflecting the potential cost savings of energy efficiency, being responsible corporate citizens and the need to respond to growing consumer awareness of sustainability issues. By occupying assets built with state-of-the-art design and materials, which incorporate low-carbon technologies and energy efficiency, they can minimise their environmental footprint and optimise their use of natural resources. In addition to reducing their environmental impacts, occupiers increasingly want a workspace that promotes employee wellbeing, not least because this helps them to attract and retain staff at a time of growing labour shortages.
Sustainable assets are also more attractive investments, offering lower obsolescence, lower running costs and greater long-term appeal to occupiers and investors.
Attractive market fundamentals
Despite strong and increasing occupational demand, the supply of prime, large-scale logistics assets remains constrained in core locations close to densely populated conurbations, where there are comparatively few sites which can accommodate such large facilities. These large properties also require an available and affordable labour supply, significant power provisions and to be in close proximity to appropriate transport links and infrastructure.
These necessities together with municipalities' reluctance to zone for the largest properties, instead preferring to consent for smaller unit development, constrict and control the supply of new large-scale facilities. The consequence is that logistics vacancies across Continental Europe are at, or near, all-time lows.
Such strong occupier demand and constrained supply, combined with rising land prices, raw material, and labour costs, mean there is pressure for rents to increase. Another important effect now evident in some European markets is the potential to improve lease terms in favour of the property owner, such a longer lease terms as well as better indexation clauses.