A combination of inflation, rising fuel prices and supply chain pressures are causing spikes in supply chain costs. To add to the mix, the February 2022 Logistics Rent Index by Prologis estimates that today’s leading online companies spend over 100 basis point (bps) of revenue on logistics rent when compared to around 25-35 bps for traditional supply chains between 10 and 20 years ago.
According to Prologis’s findings, 2021 rent prices have been growing by 15.4% year-on-year globally (2020: 2.9%) and by 7.2% in Europe (2020: about 0.3%), with the UK market recording the highest growth in the region at 13.1%, almost three-time fold more than the average in the continent, standing at 4.8%.
The reason for the 2021 global increase can be summarised in a statement by James Breeze, CBRE’s senior director, and global head of industrial and logistics research: “It’s e-commerce, it’s inventory control and general demand from the public on an improving economy”. The increasing cost of materials and land values have also contributed to the increase in logistics space rents.
Since around the second half of 2021, reports of bidding wars for logistics space have been hitting the headlines of worldwide publications. The game is on, and may the best bidder survive. It is not by chance that recently on February 11, 2022, what is believed to be the largest logistics warehouse investment sale in the UK so far has taken place, as Amazon’s 2m sq ft warehouse in Wakefield, West Yorkshire has been sold for what has been defined as a “record-breaking £232m”.
Looking at the data, however, and particularly 2020 and 2021, price growth has not been homogenous and there is a surprising disparity amongst some of the markets. Particularly striking from the chart is the case of Warsaw’s market, experiencing a decline in logistics rent prices by 32.7% half-over-half to €3.3 per sq m/month between H1 2020 and H2 2020, while prices have been stable in most of the other European markets here compared.
When looking more specifically at growth between H2 2020 and H1 2021, Bucharest and Bratislava markets experienced negative price growth by 2.5% and 5.0% to €3.9 per sq m/month and €3.8 per sq m/month respectively during that half, whereas in markets such as Frankfurt and Madrid prices grew by 4.6% and 3.8% half-over-half to €6.8 per sq m/month and €5.5 per sq m/month respectively during the same period.
Prices seem to have stabilised for Warsaw and Bucharest in H2 2021, while Bratislava’s market grew by 2.6% half-over-half to €2.6 per sq m/month. Prague, Frankfurt, and Madrid’s markets experienced higher growth of 6.1%, 3.0%, and 3.6% half-over-half, respectively, to €5.2 per sq m/month, €7.0 per sq m/month, and €5.7 per sq m/month.
These disparities exist because despite an acceleration of pan-European demand for logistics space on the back of e-commerce growth both in 2020 and in 2021, markets where lower regulatory and geographic barriers to new supply exist, such as Poland, Bucharest, or Bratislava, have been experiencing slower growth than their counterparts.
Research currently undertaken by Ti for the upcoming 2022 e-commerce logistics report suggests that both Poland and Romania’s e-commerce logistics markets will be amongst the ten fastest-growing countries globally over the next five years. The need for logistics space to accommodate higher inventory levels to respond to ‘all-year-round peak season’ is likely to push up logistics space rent prices in the long-term also in these markets.
Source: Transport Intelligence, February 21, 2022
Author: Caterina Ciccone
The graph featured in the brief is “Europe Distribution/Logistics Rents” and can be found on the Warehousing section of the Ti Dashboard.
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