Occupational Demand Investment Outlook COVID-19 - Savills
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European Commercial – December 2020
S P OT L I G H T
European Logistics
Savills Research
Outlook 2021
Occupational Demand Investment Outlook COVID-19
European Logistics Outlook 2021
Surging online retail sales
Economic overview over the economic outlook, hindering shift by circa 12 months, albeit, the
Eurozone industrial production fell planned retail expenditure. Despite downside of a second wave is likely to
during September, latest data shows, the extension of a number of Europe’s amplify the effect. Of course however,
and remains 5.8% below the level in furlough programmes and increased it is the quantum of online retail
February 2020. However, this was due Eurozone household savings ratios sales rather than just the proportion,
to a fall in Italy, whereas production during Q2 2020 to 25% of income, which will buoy the logistics occupier
in Germany, Spain and France all the potential for a consumer bounce- markets. Absolute online retail sales
rose. Production however may shine back appears limited. The retail sales could decrease if overall consumer
through as one of the more resilient rebound has been supported to some spending drops significantly.
sectors given that the latest lockdown extent by online activity, as consumer
measures will not impact the industry footfall still remains markedly down on Although more timely analysis from
to the same extent as retail and leisure. pre-Covid levels. Statista’s Ecommerce Outlook report
President-elect, Joe Biden’s recent US indicates online retail sales growth
election win may provide an additional Online retail penetration generally to continue into next year, taking
boost to European export markets with peaked during the April 2020 lockdown Germany as an example (Chart 1).
seemingly more outward looking trade in Europe, although with the usual The speed of consumer behavioural
policy. Black Friday, Singles Day and pre- change will largely be influenced by
Christmas boom in online sales, government policy and distribution of
Eurozone consumer confidence online penetration could compare a vaccine, from which more evidence
again dropped in November from -15.5 with levels seen during the first will arise early next year.
to -17.6 and well below the long term wave. Adopting the Centre for Retail
average of 9.7 as a result of reinstated Research’s forecasts, the Covid impact
lockdowns and gloomier sentiment is anticipated to speed the ecommerce
Chart 1: Germany online retail sales growth by sector
Total Fashion Electronics & Media
Toys, Hobby & DIY Furniture & Appliances Food & Personal Care
35%
30%
25%
20%
15%
10%
5%
0%
2018 2019 2020 2021 2022 2023 2024 2025
Source: Savills, Statista
savills.com/research 2European Logistics Outlook 2021
2020 take up on course for a
record year
Occupational markets Spain (+7% yoy) and Portugal (+35% extraordinary circumstances. We
Logistics take up has remained yoy) recorded resilient annualised anticipate that 2021 will follow suit in
resilient for the first three quarters of growth, given rising ecommerce many respects as retailers have more
2020, reaching 21.8m sq m, rising 10% penetration rates. A comparable story time to fully consider their omni-
above the equivalent level for this stage towards Europe’s eastern extremity, channel strategies.
last year (Chart 2). The Netherlands where Romania’s 270,000 sq m (+23%
(4.6 sq m, +56% yoy), Poland (3.7m sq yoy) logistics demand recorded an
m, +33% yoy) and the UK (3.5m sq m, annualised increase.
+46% yoy) accounted for the majority
of the overall increase. It should be The final quarter has traditionally
noted that 2020 already marks a record provided a boost in leasing volumes as
year of take up for the UK, exceeding the year draws to a close. We anticipate
the 3.5m sq m of take up achieved in Czech Republic (958,000 sq m, -13%
2016. Germany (5.1m sq m, +1% yoy) yoy), Ireland (188,000 sq m, -12%
has remained the dominant market yoy), France (-31% yoy) and Belgium
this year. (1,168,000 sq m, -35% yoy) will end the
year around their 2019 levels which
Logistics demand in Iberia grew could push Europe into a record year
markedly on the previous year, as of logistics take up in what have been
Chart 2: European logistics take up
30,000,000
UK
Spain
25,000,000
Romania
Portugal
20,000,000
Take up (sq m)
Poland
15,000,000 Netherlands
Ireland
10,000,000
Germany
France
5,000,000
Czech Republic
Belgium
-
2012 2013 2014 2015 2016 2017 2018 2019 2020
Q3
Source: Savills
3European Logistics Outlook 2021
Vacancy rates hold steady at 5.3%
Europe’s average logistics vacancy Prime Rents rents rose 8% over the past six months,
rate held steady at 5.3% in the third Prime headline rents have remained while Budapest’s secondary rents grew
quarter of 2020, with a number of fairly stable during the six month by 7%.
markets now extremely undersupplied period Q1-Q3 2020, with only Central
(Chart 3). Minor increases in Poland Poland (+5%), Warsaw City (+5%) and As a result of the undersupply, we
and Madrid were recorded due to the Dublin (2.3%) markets observing an anticipate rental growth to resume
delivery of new speculative space. In increase in prime rents, which is not across the core mainland European
the UK, Savills have observed a 12% entirely to be unexpected during the markets from 2021, given the structural
equilibrium vacancy rate for stable pandemic. undersupply of prime last mile
rents, so should any second hand space facilities compared to the UK.
from distressed retailers return to the In fact, alleviated fears of secondary
market in 2021, this should not stunt space returning to the market from the
the positive rental trajectory projected pandemic has applied upward pressure
pre-Covid. on secondary rents. Dublin’s secondary
Chart 3: European logistics vacancy rate
Q3 2020 Q2 2020 Q3 Average
12%
10%
10.6%
9.7%
8%
8.2%
6%
6.1%
6.0%
6.0%
5.4%
4.8%
4%
4.7%
4.1%
4.0%
3.1%
2%
2.3%
1.9%
1.8%
0%
Source: Savills, *=indicative vacancy rate
savills.com/research 4European Logistics Outlook 2021
Development pipelines appear
restricted and mainly prelet
Increased developer caution since the most constricted markets within strong development completions so
Q1 2020 has led to pipeline completion Europe. 91% of Sweden’s 557,000 sq m far during 2020. A similar picture is
dates being extended into 2021. pipeline is already pre-let for next year, evident in the more land-constrained
However, based on chronic shortages whilst only 161,000 sq m of new space Czech Republic- of 500,000 sq m
of supply, developers are generally is expected to complete in Helsinki anticipated for delivery next year, 52%
still keen to push the button on new next year. With most of the Nordic is pre-let. The 200,000 sq m of space
schemes (Chart 4). markets ecommerce penetration under construction in Romania is
hovering around the 10.7% tipping likely to maintain vacancy rates around
In Dublin for example, 130,000 sq point (where we observed a marked the current level of 6%. One problem
m of new stock will be brought to the increase in logistics demand in the for CEE development may arise from
market speculatively of which half is UK), we expect occupier options to a shortage of bank lending to spec
currently under construction. Of all remain limited. schemes in 2021.
the new schemes planned pre Covid,
all are still expected to go ahead. One Despite 1.5m sq m of space under 821,000 sq m of space is on course to
obstacle for developers is that banks construction at end Q3 2020 in Poland, complete in Madrid next year, of which
remain cautious on lending to spec 71% of this is already pre-let which 41% is pre-let. Although with 654,000
schemes, so developments are equity should allay developer concerns, and sq m already signed for in the market
driven. In the UK, there is currently remains below the five year average this year, leasing momentum remains
845,000 sq m under construction level of 1.9m sq m of development strong. Barcelona’s vacancy rate is
speculatively, of which 6% has been let completions. The majority of the likely to remain around the 3% level,
before practical completion. pipeline development will complete with 61% of the 281,000 sq m forecast
in Warsaw and Central Poland, 2021 completions already pre-let.
Northern Europe remains among although Upper Silesia has recorded
Chart 4: European logistics development pipeline 2021
Development pipeline 2021 (sq m) Prelet (%)
1,800,000 100%
1,600,000 90%
80%
1,400,000
70%
1,200,000
60%
1,000,000
50%
800,000
40%
600,000
30%
400,000
20%
200,000 10%
- 0%
Source: Savills
5European Logistics Outlook 2021
Unwavering investor demand
for core into 2021
Investment transactions decline. The impact of the increased France (4.25%), Ireland (4.75%), Italy
European logistics investment stamp duty at end 2020 in Netherlands (4.75%), Poland (5.00%), Portugal
transactions reached €22bn during the has ensured a steady flow of deals this (6.25%), Romania (8.00%), Sweden
first three quarters of 2020, fractionally year, up by 59% over the same period, (4.50%) and UK (4.00%) all remained
below the level recorded at the same and we anticipate this to continue into stable.
time last year, although we anticipate the final quarter.
to end 2020 in line with the five year We have since observed prime
annual average of €29bn (Chart 5). European logistics continues to logistics yields in the UK compress to
shine through amid times of adversity, 3.75% in October, sharper than London
2020 has been a remarkable year where we have observed average prime City offices for the first time. Prime
for the Polish industrial investment yield compression over the last six yields continue to fall and we have seen
market, with investment volumes months of 7 bps to 4.84%. Compression examples of 50-100 bps compression
368% above the five year average for was observed within the Czech in core western European markets
the respective period, as investors look Republic (-25 bps to 4.25%), Germany since March 2020. For core mainland
further east for more attractive yields. (-20 bps to 3.5%), Norway (-30 bps to European markets, we anticipate
France has recorded YTD transaction 4.25%), the Netherlands (-15 bps to the spread between prime office and
levels 25% above the five year average, 4.10%) and Spain (-30 bps to 4.85%). industrial yields to fall closer to zero
although the UK has had a relatively Finland prime logistics moved out 10 in 2021.
quiet year, with volumes down by bps, in line with the trend observed in
26%, as Germany marked a modest 3% the offices sector. Denmark (5.00%), In several instances, 2020 has
Chart 5: European logistics investment €bn
€40
UK
€35 Sweden
Spain
€30 Romania
Portugal
€25
Poland
Norway
€20
Netherlands
€15 Italy
Ireland
€10 Germany
France
€5
Finland
€0 Denmark
2013 2014 2015 2016 2017 2018 2019 2020 Czech Republic
Q3
Source: Savills
savills.com/research 6European Logistics Outlook 2021
driven investors to double up on their demand for logistics facilities let to developer holders who are willing to
target portfolio allocations to logistics supermarkets across most of western test the market, bidding will remain
to circa 30-35%. We anticipate this Europe, particularly given the strong competitive.
could drive prime yields below 3% for covenant and long lease terms.
ultra-core markets let to ecommerce However, the recent announcement
operators on long leases in 2021, when As investors seek to deploy of a vaccine may help to temper some
you consider the lowest cost of capital capital by year end, Savills have of the pent up investor demand for
showing interest and actively acquiring seen scores of interested parties prime logistics facilities across Europe.
in the sector. Deals which are re- reviewing opportunities for some We have observed an initial some drop
setting prime yields and achieving sub portfolios, with portfolio premiums off in some of the logistics REITs as
4% are generally let to online retailers achieved of between 5-10% and these a result of the news (although many
on single-storey premises, where are increasing. Debt terms remain have since rebounded), and conversely
covenant strength is becoming the favourable for the logistics sector, a surge in investor demand for listed
main differentiator for pricing. albeit there is less depth to the market retail and office investment vehicles.
than pre Covid. As offices has traditionally accounted
Signs of a polarisation in pricing for 40% of total commercial volumes
for ecommerce led covenants vs More frequently, international and logistics 10-15%, we expect to see
automotive/ other manufacturing are developers are looking to build to some capital reallocation into 2021.
becoming apparent. Online grocery hold, which would arise as a threat
sales growth is piquing investor to investment volumes next year. For
Chart 6: European logistics prime yields, Q3 2020
9.00%
8.00%
8.00%
7.00%
6.00%
6.25%
5.00%
5.20%
5.00%
5.00%
4.85%
4.75%
4.75%
4.50%
4.00%
4.25%
4.25%
4.25%
4.10%
4.00%
3.50%
3.00%
2.00%
1.00%
0.00%
Source: Savills
savills.com/research 7Savills Commercial Research
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Investment and Agency
Marcus De Minckwitz Will Percival
Regional Investment Regional Investment
Advisory Advisory
+44 (0) 207 409 8755 +44 (0) 207 330 8628
MdeMinckwitz@savills.com will.percival@savills.com
Research
Mike Barnes
European Commercial
+44 (0) 207 075 2864
mike.barnes@savills.com
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