The logistics sector has become a more vital part of people’s lives throughout the Corona pandemic. Accelerating online-shopping is increasing the demand for last mile delivery. The growth of ecommerce, in turn, has increased the demand for warehouse space but the big question will be what the longer-term, stable outlook will be for consumer spending as a whole and online spending within this. Savills European Research have observed an increase in the number of short-term leasing deals as business uncertainty is resulting in occupiers seeking shorter lease terms.
Online retail sales were accounting for unprecedented levels of total retail sales during the lockdown period in Europe, spiking to as high as 33% in the UK. Western Europe’s six largest economies’ online retail sales share of total sales is expected to rise from 12% in 2019, to 16.2% in 2020, before easing back to 15.3% during 2021.
One challenge for the European logistics market is the stagnating levels of continental and global trade. World Trade Organisation estimate global trade to fall between 13% and 32% during 2020. Foodstores and retailers with an established online presence are expected to be more sheltered to business failure than those retailers who were slow to adopt an omnichannel offering.
European logistics demand shows resilience through COVID-19 but business uncertainty has pushed occupiers to seek shorter lease term and renegotiate leases. Landlords however are reluctant to offer shorter lease commitments and therefore incentives for shorter terms have reduced. For many occupiers, existing warehouses are no longer suitable to meet the increased demands of ecommerce.
European prime logistics rents remained stable during H1 2020 but more subdued rental growth is anticipated through 2021 as occupiers take the opportunity to negotiate more favourable incentives. However, the rise in rents for last mile logistics is estimated to remain positive.
Logistics investment transaction volumes totaled €13.3bn in Europe during the first half of the year compared to €14.5bn in the same period last year, reflecting an annual decrease of 8%. Investors look to review their asset allocations in favour of the logistics sector which is considered one of the most resilient in this economic downturn. Nevertheless, the logistics sector accounted for 11% of the overall investment turnover during H1 2020, still in line with the 5-year average. This is because the availability of stock is still unable to keep pace with investors’ high demand, constraining investment volumes in the sector. Driven by high investment demand combined with lack of product, Savills expect prime yields remain stable until the end of the year.
Please, open the link to see more in detail information: Savills Spotlight European Logistics Outlook, September 2020
Irma Jokinen, researcher