LOGISTICS BRIEFING: Troubled eurozone drives investors to periphery

Uneven economic growth across Europe is driving logistics investors out of the core eurozone towards more peripheral markets where the pickings are richer, PropertyEU’s European Logistics Investment Briefing held in London this week heard.

While investment in logistics is soaring, driven by factors like the growth of ecommerce, the outlook differs widely per country and region, market experts agreed.

‘As long-term investors it is a very good time to get into the market,’ said Tony Smedley, head of pan-European property funds at Schroders. ‘The question is identifying the growth regions.’

Sweden and the Nordic countries have been popular as markets to hedge the euro against - Stockholm is the fastest-growing place in Europe - but they are seen as expensive. Romania is a fast-growing country that is doing all the right things, while political uncertainty is holding back Hungary and Turkey.

‘The big story this past year has been the periphery of Europe, like Ireland and Portugal, coming back strongly, while the core eurozone is in trouble,’ said Richard Holberton, director of EMEA Research at CBRE. Spain and Ireland have seen the biggest rebound in sentiment.

Yet even in the troubled core eurozone there are pockets of great potential, the briefing heard. Barcelona and Milan were cited by several experts as areas of opportunity, regardless of how the economies of Spain or Italy perform.

Jack Cox, director of EMEA capital markets at CBRE, identified Dublin as ‘the stand-out city with interesting dynamics, although it is difficult to build up scale there’.

‘Location is key and everyone wants to move closer to the larger conurbations where demographics are at work,’ said Tristram Frost, consultant at the Garbe Group. ‘The further out of town you go, the more risk you have.’

With London and other urban centres with big airports ‘you cannot go wrong,’ said Joseph Ghazal, managing director and head of capital deployment Europe at Prologis. ‘There will always be demand and they will always generate a good cashflow.’

The downside, according to CBRE research, is a polarisation of demand, which is very marked in accessible European locations. Richard Holberton, director of EMEA research at CBRE, described this trend as a ‘demand dumbbell’ with urban logistics and parcel delivery centres at one end, warehouse platforms at the other end and ‘the squeezed middle’ in between.

All the panellists agreed on the difficulty of anticipating market changes amid a fast-changing retailing and distribution landscape. While the growth of ecommerce is set to continue, there will be new developments that force investors to adapt quickly to the changing environment.

One example is the growth of 3D printing, which could have a significant impact on the logistics sector. Another is the rise of the pharmaceutical and life sciences sector, which requires warehouses to be temperature-controlled and highly secure. Yet another is the effect of the increasing use of robots in warehousing. ‘Markets are changing very quickly and a lot of factors can have an impact,’ said Smedley of Schroders. ‘We are always one step away from being able to influence the logistics sector or even interpret it.’