Total returns for the logistics market across Europe will improve to an estimated 8.2% pa for the next five years, driven by a faster than expected repricing for the sector.
In its latest monthly research report, AEW said the forecast showed a significant improvement of 290 bps from its previous September 2022 base case.
“That is driven by faster than expected repricing, our improved rental growth outlook and projected yield tightening as inflation and bond yields are expected to normalise,” said Hans Vrensen, managing director and head of research and strategy for Europe at AEW.
“In our relative value classification, logistics is the best positioned sector in European real estate, with the highest proportion of attractive and neutral markets of any sector,” Vrensen added.
“The Nordics and Benelux regions have the highest proportion of attractive logistics markets.
“On a city level, the UK regional logistics and light industrial markets are well represented in the attractive category, followed by Paris light industrial as well as Oslo and Amsterdam logistics.”
The report highlights the impact of the overall slowdown in retail sales volumes and weak economic sentiment on logistics occupier demand in the short term, with Q1 2023 take-up down by 44% year-on-year.
Deals are taking significantly longer and occupiers are tending to stick with their existing spaces rather than sign up for big-box units, it says. However, take-up is expected to recover as the economy improves, manufacturing and shipping revert to long-term growth, and e-commerce growth rebounds.
As the chances of recession have diminished, AEW has revised its rental growth forecast for 2023-27 from 2.5% to 3% pa.
Within this European-wide average, central and eastern Europe and the Benelux are expected to show the strongest growth, while the UK hovers just shy of 3% but ahead of southern Europe and well ahead of Germany and France.
With weaker take-up in the short term and existing pipeline projects coming online, the average vacancy rate is expected to increase slightly, but remain well below 4% and come down after 2024 as new construction slows down.
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