Logistics is defying economic and geopolitical headwinds to continue its upward trajectory, with investor and tenant demand expected to increase across Europe in 2017, delegates heard at the PropertyEU Logistics Investment Briefing, which was held on Friday at the headquartes of Savills in central London.
‘It is a really interesting situation,’ said Kevin Mofid, research director at Savills. ‘Global trade flows are not forecast to rise, nor is GDP in any significant way, and there is a lot of political uncertainty. Normally this would lead to a fall in demand for logistics, but the opposite is true. These are not normal times.’
The UK is a perfect example of this disconnect: despite all the uncertainty surrounding Brexit, 2016 was the best year ever for logistics, with a record take-up of 34.6m sq ft (around 3.2m m2). ‘There has been a lot of churn in the market, not just huge warehouses but many transactions at the smaller end,’ said Mofid. ‘It is a very dynamic market.’
Sector propelled by ongoing e-commerce revolution
The reason for this dynamism is the ongoing retail and e-commerce revolution. In Europe, e-commerce sales reached the €500bn mark last year and are on a seemingly unstoppable upward trend. The UK is leading the charge, but other European countries are following and catching up fast, even in Southern Europe where they start from a very low base.
The direction of travel is therefore clear, and its implications for logistics equally evident: ‘The structural changes in retail are adding extra nodes in the supply chain that need more warehouse space,’ said Mofid.
In the UK around 50% of the logistics market is linked to retail, whether high street or online. Amazon is leading the charge with a 23% market share, but there are many other companies jostling in that space. All are promising superfast deliveries to their customers, who are becoming ever more demanding.
‘Same day delivery is the new next day delivery,’ said Mofid. ‘The last mile was already a costly exercise, but now it is becoming the last half mile. Distribution needs to get closer to metropolitan hubs.'
Pace of change is accelerating
Changes are happening so fast that it is difficult to see what the implications will be for the sector. Amazon is leasing its own planes, building its own airport terminal and experimenting with stores without check-outs. UberRUSH is moving into the freight market. Even Alibaba, China's online giant with 700 million customers in China, might enter the European market.
‘I see more mergers and acquisitions, further consolidation, technological advances and constant improvements to efficiency,’ he said. ‘But it is difficult to make long-term investment decisions in such a fast-changing environment.’
Geopolitical headwinds have not affected the logistics sector’s positive prospects, but they may yet influence its development, Mofid said. For example, if border controls are re-instated in post-Brexit Europe, then products will have to be stored for longer, so there will have to be supply chain reconfigurations. All good news for logistics, he noted ‘There could be even more demand ahead.’
