The logistics market in Europe continues to gain momentum

Inflationary pressures have put the industrial real estate sector under enormous strain. Rising commodity and energy prices, high interest rates have heightened investor concerns and capital owners continue to hold off on new investments. On the occupier side, on the other hand, demand has remained unbroken, with inflation expected to stabilise by the end of 2023, allowing the overall market to rebound.

Logistics will continue to drive real estate investments

Robert Dobrzycki, CEO Panattoni, sees a lot of market uncertainty around office, retail and even residential property in Europe. While the logistics sector is on a stronger footing, a further recovery is expected from this year. The main ingredients driving this growing interest are given: the underlying technology; the rise of e-commerce; and different types of distribution such as megacentres and last mile logistics.

"Central and Eastern Europe stands to benefit more from the supply chain nearshore outsourcing trend in the short to medium term, but in the long term the biggest overall driver will be the continued expansion of e-commerce. Investors tend to underestimate the potential of Central and Eastern Europe. Logistics rents in Poland increased by 25-30% last year, but on average they are still the lowest in Europe, which represents an amazing investment opportunity" – he explained.

Demand remains high for two main logistics property developments in the local market; big box buildings and industrial parks with last mile warehouses. In addition, Panattoni's experts say that the demand from tenants for more modern and energy efficient facilities is becoming more and more pronounced in terms of manufacturing and operational needs. If the economic stabilisation continues, the market will be able to price transactions better. This will have a positive impact on industrial-logistical developments.

The role of sustainability for logistics tenants

In terms of both domestic and international examples in the sector, new investments are increasingly aligned with the Paris Agreement and the net zero emissions targets to be achieved by 2050. Modern operations require efficient, cost-effective use of electricity, water and other natural resources. With rising energy prices, the commitment to energy efficiency has become unquestionable, and installations that meet the most stringent criteria will compete. The various internationally recognised certifications (such as BREEAM or LEED) play a key role in this respect.

"In this competition, those who are able to adapt to clients and tenants with the greatest expertise and flexibility, while taking account of current economic and environmental challenges, will be in the lead. The shift in approach to BTS (built-to-suit) and BTO (built-to-own) projects at European level has also become increasingly pronounced among clients with a demand in the Hungarian market. They are looking at reducing environmental impact as a long-term goal, while energy efficiency is an acute challenge, so they want to use and operate buildings that meet these criteria in terms of both emissions and operation" – said László Kemenes, Managing Director of Panattoni Hungary.