The logistics sector proved its resilience at the height of the pandemic. It fulfilled its supply mandate incredibly well, and is expected to continue its strong performance despite the current challenging economic environment. Due to long-term trends such as advancing urbanisation and e-commerce, the "urban logistics & light industrial" sector will benefit more than most, adding to opportunities in income-resilient sectors such as housing, big-box logistics and food retail.
The sector's key strengths are driven by both the demand and supply sides of the occupier market. Continued urbanisation will generate long-term demand for urban industrial and logistics space, to supply the growing populations and economies in the local towns and cities.
The proximity to customers and urban sales markets will become the decisive factor for configuring supply chains efficiently and sustainably. While e-commerce is usually in the spotlight due to its structural growth story, the demand for urban logistics and light industrial space is much broader.
Sound demand for modern urban space is expected from smaller to medium-sized occupier groups, which contribute to the overall supply chain of the local urban manufacturing and commercial industries, such as wholesale, logistics service providers or light manufacturing. At the same time, the supply side is extremely tight. There is hardly any modern urban logistics and light industrial space available in and around key European towns and cities. New construction activity is very limited due to a lack of available industrial land and the competition with residential developers. Moreover, the EU’s target for “no net land take by 2050” will further limit the designation of new developments to reduce land consumption, which will ultimately lead to an increased densification of urban areas, mitigate urban sprawl and reinforce land-supply constraints.
This structural imbalance of demand and supply will drive rental growth prospects in the medium-to-long term for the urban industrial and logistics sector. On the supply side, however, there is another component which comes into play: a largely obsolete building stock. We see opportunities in upgrading large parts of the current Industrial & Logistics property stock in urban locations, creating significant value-add potential through upgrading measures, repositioning strategies and active asset management to create best in class, ESG-compliant industrial space. In summary, we believe that the urban logistics & light industrial sector is very well positioned to overcome the cyclical macroeconomic challenges that we face. The structural supply and demand imbalance will create market resilience, complemented by the potential for value enhancement, which should cushion cyclical risks very well.
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