+33(0)1731019952017 marked a historic peak in terms of sales volumes, with an influx of new investors and large-scale operations seen across the market.
Boosted by a growing European market, the logistics industry continues to attract investors. The market is ‘flourishing’, according to BNP Paribas Real Estate in its latest study conducted across 21 European cities. In terms of investments, the European market has reached historic levels thanks to the sale of pan-European portfolios in 2017.
In Holland, investments doubled in 2017 with the sale of Logicor for over €12 billion. The Dutch market alone represents 17% of all commercial property investments in Europe. Carried by the same current, France also saw a steep increase in activity last year, even without its ‘corporate deals’ market.
The United Kingdom also performed well, having almost doubled its market last year by boosting large-scale deals. With some €40 billion spent in the European logistics industry last year, investments have increased by 62% in comparison to 2016.
With a record amount of €9.2 billion invested in logistical assets in 2017, Germany leads the European market. "2017 has been a record year for investments in the logistics and industrial sectors in Europe due to large transactions and new arrivals on the market, in addition to a number of Asian investors. The logistics market continues to outperform the office and retail sectors with a good level of demand across all risk profiles", highlights Logan Smith, Manager for Logistics Sales Investments for Europe.
Large surfaces are still in demand
Sales have been particularly supported by the demand for warehouses with over 5,000m2, with a 9% rise in 2017 compared to the year before. The demand remains strong in the majority of European countries after an exceptional year in 2016, with record figures in France, Spain, and Holland. Spanning more than 4 millionm2, the French market has benefited from a "solid economic environment" and "better long-term visibility since the Presidential elections", remarks BNP Paribas Real Estate. And more specifically: "the market has been bolstered by the demand for large distributors in the food industry as well as in e-commerce."
With demand increasing by 117% from 2017 to 2016, Holland also saw historic sales figures, "boosted by the internal demand and the industrial production". Spain also continues to benefit from this dynamic market, nourished by the strong rise in e-commerce. In Madrid, sales volumes more than doubled in relation in 2016.
European logistics property: a decline in returns
The need for big and small e-commerce spaces go unfulfilled due to a low supply and absence of prospective projects. This continues to weigh on the market, a shortage that eventually leads to an abrupt compression in returns rates. After declining in 2015 and 2016, returns continued to decline in 2017 to 4.5%, in asset categories such as big logistics hubs. The rate of prime returns alone had diminished by 10 to 15 base points on the principal European markets.
The expert’s opinion : Vincent Robion, Head of Research-Logistics Europe at BNP Paribas Real Estate
How do you explain the historic rise in logistics investments in 2017?
"The market is still well orientated because of development opportunities across several markets, such as e-commerce, which has risen from 10 to 12% each year. Moreover, certain countries which experienced a recession in 2014, like Spain and Holland, were renewed by the growth in 2016 and are now benefitting from a catch-up effect. The logistics industry has also been favoured by investors because interest rates are still low — which wasn’t the case five years ago. This trend is relatively new. In terms of investments, the influx of new financial investors asides from the ‘pure players’ on the market appears to provoke a strain on supply, and leans towards creating a speculative market. This lack of goods should slow down the development of the logistics property market."
What are the risks today?
"The question is knowing how the market is going to evolve after such an exceptional year in 2017. Faced with the dynamic of the e-commerce sector, which is supported by a strong demand on the domestic market, logistics assets are in short supply. Therefore, the risk of developing a speculative market has to be taken into account. Property developers have a tendency to build badly located warehouses which risk staying empty due to a lack of renters — the opposite of this positive trend. In terms of investments, we should expect a slight decrease in growth in 2018, in comparison to 2017 which has been a record-breaking year. And this growth will still be well above average for record volumes over the last 10 years. We should, therefore, expect the market to return to normal."
How do you account for the growing interest in investors, especially Asian ones, in the logistics sector?
"Compared with others markets such as office and commercial, the financial opportunities available in the logistics market are on the rise, and investors are looking to diversify. From the €40 billion spent on European logistics over the course of last year, €18 billion has been invested by funds from Singapore, China and Korea. This represents between 15 to 20% of the total invested in Europe in 2017. China alone has invested €12 billion. This wave of Asian investments is new on the market and in Europe, it’s countries like Germany, United Kingdom and France which have profited the most. These three combined countries represent between 65 and 75% of the global sum invested in Europe. A historic record."