Demand for logistics is being driven by occupiers and the sector’s fundamentals are so strong that there appear to be no clouds on the horizon, experts agreed at PropertyEU's European Logistics Roundtable, which was held at Mipim 2017.
'The outlook for logistics is very strong, it has become a bullet-proof sector,' said Jack Cox, head of EMEA industrial and logistics capital markets at CBRE. 'Investors are focused on the occupational market, and it is very hard to see any negatives on that story. We have never seen a more robust market.'
What makes this cycle different and more sustainable is that 'the fundamentals are set fair for our sector', he said. 'The capital markets are not being driven by the availability of cheap debt or by the availability of cheap LTVs. It is an occupationally driven story.'
Geopolitical risk is much-discussed now with the French and then German elections looming, but investors tend to focus on the fundamentals, the stability of cashflow and the low volatility, especially in a sector like logistics that has the advantage of being more sheltered than most other sectors from political shocks.
'The great thing about logistics is that you still need it whoever is in government,' said Ian Worboys, CEO of P3 Logistic Parks. 'Elections do not have an impact on the demand for warehouses. The question is whether people have money to spend on goods which would increase the demand for logistics, but the fact is that the market now looks really good and demand is strong across Europe.'
External and internal challenges
The challenges for logistics, whether external – like political or economic shocks – or internal, like increased efficiency in inventory management and technological innovation – are all manageable and unlikely to halt the sector’s growth, experts agreed.
‘There are lots more drivers of demand than there are risks for the sector,’ said Tom Waite, national director capital markets – logistics and industrial at JLL. 'JLL's view is that take-up for logistics space in Europe will continue to go up year after year.'
Good fundamentals are now leading to rental growth, which has been slow in coming. 'There are record low vacancy rates across Europe, strong occupier demand and controlled supply, all factors which point to rental growth, especially in markets like Spain where rents had fallen more than elsewhere,' said Waite.
'There is a shortage of space everywhere and that is why we are seeing slow but sure rental growth,' said Worboys.
Speculative development
Another sign of the health of the sector is the fact that speculative development is happening, because demand for space is so high, but it is not flooding the market at the risk of creating an unsustainable situation as in the past.
'It is not ridiculous like 2006, when a lot of spec was being built,' said Worboys. 'Now people are more sensible and more circumspect. We always have some spec under construction as a policy, and it is usually let by completion. It is a measure of our confidence in the market.'
