Five key drivers of logistics property market change

There is increasing interest in logistics property as an asset class, as evidenced by the launch last week of a new Pan-European Logistics Property Index by Investment Property Databank. To understand how logistics property markets across the EMEA region may evolve we need to look beyond basic market statistics at the underlying drivers of change.  Here are our top five.

First, world trade and seaports. Long-term forecasts suggest that world trade growth will exceed world GDP growth, and about 90% of world trade is handled by sea ports. This will generate growth in container traffic, and with container ships getting bigger some ports will be better placed than others to win the competition for freight. These ports will develop as hubs and encourage a rise in ‘portcentric’ logistics, including large logistics facilities at ports and / or at intermodal inland ports.

Second, internet retail is growing rapidly and this will be an increasing source of demand for both large and smaller logistics units. For example, Amazon has taken a number of very large facilities over recent years, notably in the UK and Germany, and it now has additional requirements for smaller facilities to provide same day delivery to many UK cities.

Third, manufacturing. The rising costs and risks associated with extended global supply chains, are encouraging companies to look at more local suppliers, or at bringing some manufacturing closer to the market it serves. Proximity to market also increases supply chain ‘agility’, enabling companies to respond more quickly to volatile demand.  These trends will create more demand for industrial and associated logistics facilities in Europe as some manufacturing moves closer to market.  Parts of North Africa may also be good ‘near shore’ locations to service European markets.

Fourth, city logistics. Nearly three-quarters (73%) of Europe’s population lives in urban areas and this proportion is rising. Cities are engines of economic growth, but have distinctive logistics issues due to the pressure on land from competing uses, congestion and the fact that they are often subject to more regulations effecting transport and warehouse operations than other areas. As cities grow in terms of their populations and economic activity, and as pressures increase to find more sustainable logistics solutions to supply them, we will see increasing demand for logistics facilities in and around cities, including shared user facilities operated by logistics companies.

Lastly, but by no means least, demographics. Population has always been a key factor influencing logistics markets, particularly the location of distribution centres servicing retail stores. Long-term, differential rates of demographic growth and ageing, and associated changes in incomes and spending, will have a dramatic impact on global supply chains.  For many companies, this will drive significant change in their current logistics networks.