Savills’ de Minckwitz: Logistics is the new golden child of European real estate

Logistics’ future remains bright, says Savills’ director Marcus de Minkckwitz, despite a challenging year accelerating a number of trends.

Marcus de Minckwitz
Marcus de Minckwitz

In a period full of uncertainty, the real estate industry has experienced unparalleled changes that have accelerated trends across all sectors. Logistics is no exception and has proven nimble and resilient over the past 12 months.

Online sales, for many retailers a primary route to trading in the first covid-19 lockdown, rose dramatically and prompted a surge of demand for industrial space across Europe. The Centre for Retail Research forecasts covid’s effects will speed the e-commerce shift by as much as 12 months.

Data from Savills suggest take-up for logistics space reached 21.8 million square meters (235 million square feet) in the first three quarters of 2020, rising 10 percent above the equivalent level for the same stage last year. Indeed, the Netherlands (4.6 million square meters, up 56 percent year-on-year), Poland (3.7 million square meters, up 33 percent) and the UK (3.5 million square meters, up 46 percent) accounted for the majority of the overall increase, with demand also increasing in Spain (up 7 percent) and Portugal (up 35 percent) as e-commerce penetration rates continue upwards.

Investment versus occupancy

The investment picture very much mirrors occupancy. Demand for core logistics assets soared throughout 2020 and competition is causing unprecedented yield compression. Unwavering appetite for logistics resulted in €22 billion being deployed in the first three quarters of 2020, with Germany, the UK and the Netherlands seeing particularly high levels of activity.

Looking into 2021 there is confidence in the positive story for logistics. The speed of change among consumer behavior will continue to drive demand for last-mile logistics and even returns facilities as the trend toward online continues. Compounded by the digitalization of retailers’ processes, we expect competition for the best logistics assets to continue and we are starting to see the impact of nearshoring, which is further increasing demand.

The logistics and industrial market is maturing rapidly and we expect different sub-sectors to emerge. The overriding theme is increased demand for space, but we have to be mindful of the negative consequences of the pandemic on the occupier base and what impact this could have on investors and lenders. We believe the market will continue to be attractive despite the headwinds, although asset selection will become increasingly important.