Increasing geopolitical tensions could mean more trade restrictions worldwide. However, new trade routes and economic development initiatives offer opportunities for expanded transportation and logistics networks in Europe. Projects such as the New Silk Road, which will stretch from China to Europe, will forge links between locations previously isolated from each other, potentially creating demand for new logistics hubs along the way.
Technology is changing consumption, production and supply chains, with e-commerce growing rapidly across Europe. Prologis research found that e-commerce retailers require three times more logistics space than store-based retailers. Increasingly automated factories and logistics warehouses may enable traditional, labour-intensive manufacturing to move closer to consumers, allowing for more efficient use of land. Furthermore, autonomous vehicles could help revolutionise logistics supply chains and transportation.
Europe’s ongoing urbanisation is fuelling competition for land and demand for smart logistics solutions. The more expensive and complicated processes of last-mile logistics are spurring growth of cross-docked distribution centres on the edges of towns and cities as a go-between for national and pan-regional distribution centres.
Logistics properties have an attractive risk-return profile compared to offices and high street retail. The yield gap between prime logistics assets and prime office and retail properties is relatively high. Moreover, logistics assets often deliver triple-net leases with fully index-linked rents. Investment in European logistics assets allows for real estate portfolio diversification: compared to office and retail properties, logistics properties deliver high distribution. In addition, total returns are more stable for logistics than for office and retail properties. We see opportunities in cross-docked logistics facilities of 2,000-10,000 square metres (sqm) in or on the fringes of major European cities, mega-distribution centres of 60,000-100,000+ sqm in traditional logistics locations close to or between urban areas and modern, mid-sized distribution centres.
In 'European logistics: warehousing the future,' we explore various structural shifts from which the logistics sector is benefitting and feature interviews with experts, highlighting key insights into their respective markets.
Source : Savills Investment Management