European Industrial & Logistics Sector Outlook 2024

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The demand for logistics space to support retail supply chains is anticipated to persist into 2024 and beyond.

While economic factors have contributed to a slowdown in occupational activity, additional dynamics are bolstering ongoing demand, particularly for new and high-quality space. In the current climate of emphasising operational cost, businesses may discover that upgrading to new logistics space is operationally more cost effective. Likewise, the consolidation of operations into fewer but larger buildings can yield efficiency gains, subsequently reducing costs and enhancing processes. These somewhat counter-cyclical dynamics can spur activity even in a challenging economic environment. From a structural change perspective, ongoing factors drive the need for additional logistics space in Europe. The expansion of online retail and the necessity for logistics properties to meet delivery demands are expected to persist. Although the growth in online retail sales volume has been relatively subdued in 2023 due to consumers scaling back spending both online and overall, forecasts indicate a return to growth in the coming years. While retailers adapt their online sales fulfilment strategies, including utilising stores as micro-hubs, logistics warehouses remain inherently more efficient for delivering effective logistics solutions. Consequently, the demand for logistics space to support retail supply chains is anticipated to persist into 2024 and beyond. Furthermore, space demand from manufacturers is poised to persist as the nearshoring trend, strategically situating production closer to consumer markets, unfolds. Demand from manufacturers surged 27% from 2017 to 2022, and the level of inquiries, particularly from high-value added manufacturing businesses in Central and Eastern European countries, remains robust.

Considering the enduring nature of manufacturers' real estate needs, this trend is anticipated to grow steadily over time, adding to demand for both manufacturing and logistics facilities. A significant structural shift impacting all property categories, including logistics, is the occupiers' demand for spaces that prioritise sustainability. Given that the lifecycle of logistics and industrial real estate is typically longer than of office and retail spaces, there is a pressing need for higher quality environments that help deliver on occupiers' sustainability goals. This demand is expected to prompt occupiers to choose buildings with higher sustainability credentials to align with their corporate ethos or brands regarding sustainability, some doing so rapidly, consequently driving transactions. With the anticipation of diminishing economic uncertainty, business confidence is beginning to stabilise, marking a positive turn from the downward trend observed since early 2022. This trend is promising for occupiers, increasing the likelihood of committing to new logistics space. In certain countries, the pace of occupier take-up decline has slowed, and, in some instances, take-up has actually increased. Across Europe overall, our expectation is that take-up volumes in 2024 will be on par with pre-pandemic levels, as opposed to reverting to the extraordinary levels witnessed during the pandemic.

6 LOGISTICS & INDUSTRIAL OUTLOOK 2024

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