London, 2nd February 2021 – A new survey from global real estate advisor, CBRE shows that Covid-19 remains an important consideration for occupiers and will continue to drive demand for space in Europe. CBRE’s first European Logistics Occupier Survey, in conjunction with Analytiqa, analysed responses from more than 100 of the largest European logistics occupiers with a combined footprint of more than 40 million square metres across manufacturing, online and general retail, supermarkets and third-party logistics.
The survey shows that 47% of respondents highlighted a long term need for flexible storage space, with 36% of occupiers looking to accelerate their plans to ensure logistics facilities are ready to cope with increased demand from the rapid growth of the online channel.
Respondents also showed a willingness to explore non-traditional locations, outside of the core logistics hubs, to accommodate their expansion. A total of 64% of online retailers admitted that they would consider non-traditional locations, with 44% of all respondents saying they would do so.
The survey also shows that urban logistics is becoming increasingly important, with 64% of online retailers suggesting expanding in urban locations is now a high priority. This trend is reflected in the fact that delivery time to customers remains one of the most important factors influencing location decisions, with urban locations increasing efficiencies and shortening supply chains.
Moreover, according to the survey, 50% of online retailers in Europe believe they will need additional logistics space in the UK as a consequence of Brexit, with a further 40% suggesting they will also need additional space in the EU.
Garrett McClean, who heads up the industrial & logistics team in CBRE Dublin commented: “Recent global events have shone the spotlight on logistics and alerted people to the importance of global supply chains. These trends have accelerated demand from logistics occupiers and placed greater importance on issues such as labour cost and availability, urban logistics, lease costs and flexibility. These trends in turn impact investor decision making and we anticipate high investor demand, especially in emerging logistics hubs, over the coming year, as a result of these strong occupier fundamentals. In the Irish market, a combination of lockdown and Brexit-related uncertainty has stimulated an increase in Ecommerce and data centre activity and necessitated the reconfiguration of supply chains, which in turn fuelled demand for facilities in this sector of the market”
In their recent Outlook 2021 report for the Irish market, CBRE Ireland said that solid take-up was recorded in the industrial & logistics sector in 2020, broadly in line with the strong volumes achieved in previous years. In total, industrial take-up of 343,716m2 was achieved in the Dublin market in 2020, up 3% on the previous year. CBRE said they also saw increased demand for cold storage facilities to support growth in online grocery and the storage and distribution of pharmaceutical products. Increased demand for modern buildings put additional pressure on a market that was already supply-starved, leading to vacancy rates reaching all-time-lows of below 2% during the last year. As a result, prime headline rents in this sector reached €113 per square metre (€10.50 per sq. ft) by year-end. With demand expected to remain equally strong in 2021, prime headline rents in the industrial sector are expected to increase to €116.80 or €10.85 per sq ft over the next 12 months.
The pandemic that we have lived through during the last nine months and the Government’s reaction, has fundamentally changed the way that we use real estate and will have long-term repercussions. For example, CBRE expect to see greater reliance on in-country storage and significant changes to just-in-time processes in an effort to avoid potential supply chain delays. Exponential growth in online retailing in the last 12 months in particular, means that logistics has now positioned itself as critical infrastructure. Demand for reverse logistics is expected to increase in 2021. CBRE also expect to see demand for temperature-controlled warehouse space increasing as food exporters and importers move towards holding increased inventories in-country. The national Covid-19 vaccination rollout may also stimulate demand for additional cold-storage facilities in 2021. From an investment perspective, demand for industrial & logistics assets also increased exponentially during 2020, with some investors allocating capital out of other sectors to specifically target logistics investment opportunities.
CBRE expect to see more new logistics schemes coming out of the ground this year but in general terms, supply will remain relatively constrained. This, in turn, will lead to an increase in new schemes entering the planning process during 2021. Despite the imbalance between supply and demand, most developers will continue to focus on ‘build-to-suit’ projects as opposed to speculative schemes, with funding for speculative projects likely to be more difficult to source in 2021 in any event. CBRE anticipate an improvement in activity in some regional locations in 2021 but are not anticipating the delivery of speculative buildings in the regions other than in the Cork market.
In the occupier market, CBRE anticipate a particular shortage of buildings extending to up to 3,000 square metres in 2021. Typical lease structures are likely to be 10-year term certain leases although we expect to see longer commitments on new build product. With supply remaining tight, it will be particularly difficult to source buildings on a short-term basis for the foreseeable future. Take-up in the Dublin market in 2021 is expected to be broadly in line with that recorded in recent years with an increasing proportion of activity comprising pre-lettings. Demand will be primarily led by the Ecommerce and logistics sectors, food manufacturing and cold storage. With Ireland’s first pure play online retailer having set up operations in-country during 2020, this may, in turn, lead to competing firms setting up Ecommerce operations here this year. We may also see some UK retailers leasing accommodation to support online businesses to replace physical stores that closed during 2020.
Unlike some other sectors of the market, the prospects for this particular sector in 2021 are very encouraging, with the biggest challenge continuing to be the ability to source product for occupiers and investors alike.
CBRE Group, Inc. (NYSE:CBRE), a Fortune 500 and S&P 500 company headquartered in Dallas is the world’s largest commercial real estate services and investment firm (based on 2019 revenue). The company has more than 100,000 employees (excluding affiliates) and serves real estate investors and occupiers through more than 530 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com
CBRE U.C., (CBRE Ireland) registered in Ireland, no. 316570. PSRA Licence No. 001528 is the country’s largest commercial real estate services company with offices in Dublin and Cork. Currently employing over 150 employees, we work with occupiers, investors and developers of office, industrial and logistics, retail, hotel and healthcare property, providing strategic advice and execution for property sales and leasing; tenant representation, corporate services; property and project management; appraisal and valuation; development services; investment management and debt advisory; business rates and compulsory purchase and research and consulting. Please visit our website at www.cbre.ie