Savills: Green agenda to impact on European logistics market

Global property consultant Savills has warned that a plan backed by the EU Commission to increase sustainability in the warehousing sector will pose some medium-term challenges for the industry that accounts for almost 15% of the EU's Gross Domestic Product.

The Freight Logistics Action plan is designed to push the freight transport logistics industry towards long-term efficiency and growth by addressing congestion, pollution, noise, CO2 emissions and dependence on fossil fuels. 'Green logistics is a key issue for this sector and will affect the markets in the medium term. Demand remains strong on the back of a good growth in world trade, which is expected to further by over 7% this year.

However, the continuing reliance on fossil fuels threatens to derail the plan. The requirement for large-scale developments is pushing logistics hubs away from the major urban centres and while these new submarkets will ease congestion problems, in the long-term their locations will impact on behavioural patterns and transport chains as companies are forced to travel further yet conserve energy,' said Eri Mitsostergiou, head of research at Savills.

2007 was a strong year for the logistics industry with high volumes and strong expansion of the logistics services across Europe, Savills said. But in 2008 the industry will have to bear the negative impact from rising oil prices and the crisis in global banking and credit system. With the shift of production to Eastern Europe, EU trade has risen by 55% in value since 1999, and the logistics industry in Europe accounts for 14% of GDP.

Higher take-up volumes were reported during 2007 in the largest markets in Europe, such as Germany, France, Netherlands, and Poland. Savills said this suggests that the distribution warehouse sector is a highly credible property investment when compared to other property sectors.

Large portfolio transactions and sale and leaseback deals have been the main route for the acquisition of warehousing assets. The main driver of the investment performance has been a hardening in yields. Prime yield compression has slowed down during 2007, however prime yields are between 20 and 150 basis points lower compared to the previous year.

The focus of retailers in the improvement of their supply chain operation has had a large impact on demand. Consolidation activity in the industry has created the need for large-scale accommodation. Although there is still a high level of owner-occupation and supply is driven by turn-key projects, the development pipeline for speculative schemes is on the rise in the markets with high demand (France, Germany, Poland), reflecting positive developer sentiment.

Limited availability of sites, higher land values and congestion problems close to the major urban centres of Europe has pushed the development of modern distribution centres in alternative locations in neighbouring communities.

Prime warehousing rents ranged between EUR 35 per m² per year and EUR 130 per m² per year at the end of 2007. Average annual rent growth for the year was positive at 5%.