CONTRIBUTORS
Indraneel Karlekar, Ph.D
Global Head of Research and Strategy, Clarion Partners
Bruno Berretta
Head of Research, European Markets
Clarion Partners
Preview
During the previous property cycle, the European logistics sector emerged as a standout performer, driven by robust fundamentals and enduring demand trends. The sector comfortably surpassed benchmarks and other mainstream property sectors (see Figure 1 in PDF). Capital flows into the sector surged, with logistics properties reaching a record high of 21% as a share of total private European investment in 2023, up from approximately 10% a decade earlier.1
Over the past two years, the sector has returned to more typical demand levels with the lockdown-induced frenzy slowing. Despite this, the structural drivers of logistics remain largely unchanged and Clarion Partners maintains a positive outlook for the sector's long-term prospects. This, together with the interest rate induced material repricing since mid-2022 (see Figure 2 in PDF) presents a rare and appealing opportunity to invest in these enduring trends.
In this research paper, we delve into the strategic and tactical considerations that reinforce our confidence in European logistics property. We highlight our growing confidence in 2024 and 2025 to potentially be highly attractive periods for investment:
- Compelling fundamentals for European logistics
- Logistics and industrial remains well-supported by structural demand drivers
- E-commerce
- Shifting globalization and supply chain resiliency
- Sustainability & scarcity of modern stock
- Asset repricing indicates a promising tactical outlook for returns
Outlook
Despite tighter monetary conditions and increased geopolitical uncertainties, the European economy has shown resilience. With fading prospects of further rate hikes and reduced risks of recession, we anticipate that asset values will begin a recovery soon and debt capital costs will improve. These factors provide tailwinds for the logistics sector as it enters a new cycle.
Confidence in the logistics sector is bolstered by powerful and enduring structural themes. Despite some short-term challenges, we expect the sector to continue experiencing robust demand, ultimately delivering the most favorable risk adjusted returns among the four major property types.2
Endnotes
- Source: CBRE, Clarion Partners Investment Research, Q4 2023.
- Source: Green Street, Pan-European Industrial Outlook 2024, January 2024.
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