European Macro Outlook: What's in a Number?

CUSHMAN & WAKEFIELD RESEARCH European Macro Outlook

LOGISTICS

Leader of the Pack The uncertain economic environment had little impact on logistics demand during the first half of 2022. Ultimately however, the rise in debt costs, uncertainty surrounding the economic outlook and inflation, and the concomitant slowdow YoY in consumer spending caught up. The trade surplus in Germany, for example, fell to €80 billion in 2022, down by more than half compared to 2021 (€175), largely due to high energy prices. Imports fell 6.1% in December, which also indicates the pullback in spending and the result of deteriorating real purchasing power. This softening of demand has a natural effect on improving supply chains—the China-EU container freight index fell around 80% in February 2023 from the peak in January 2022. This had an impact on take-up for the sector across Europe, with take-up settling at 8.6 million sqm, representing a 29.8% decline over the previous year and -2.1% compared to the previous quarter. GLOBAL SUPPLY CHAIN STRESS INDEX VS. GERMAN IMPORTS

Although there is a significant amount of uncertainty around the geopolitical landscape, global supply chain pressure continues to provide relief. The global supply chain stress index fell from its peak of 4.31 in December to 0.95 in January 2023, but it remains above its pre-pandemic level. In addition, the re opening of China’s economy will further improve the flows of some key products of cross-border trade, especially in machinery, vehicles and other manufactured goods. Against this backdrop, we expect demand and take up to moderate in the short term before picking up in H2 2023, as more clarity emerges around the consumer outlook. Even with moderation, occupier demand will remain robust and should continue to come in above pre-pandemic levels in the coming years. The search for prime logistics buildings that are strategically located, near transport hubs and well connected to the road network will intensify as occupiers strive for operational- and cost-efficiency in a challenging economic environment. However, constrained availability of space, driven by the lack or delay to supply, will mean occupiers will consider secondary buildings and alternative locations. Up 40 bps in the fourth quarter of 2022, the vacancy rate for the sector is sitting at a level of 3.8%. It remains very low compared to historical levels and should continue to support above-average rental growth in the sector.

Global Supply Chain Stress Index German Imports (RHS)

5.0

20 30 40

4.0

3.0

-30 -20 -10 0 10

2.0

1.0

VACANCY RATE BY COUNTRY (%)

YoY % chg

0.0

Q42020 Q42021 Q42022

-1.0

0 1 2 3 4 5 6 7 8

Index (S.D. from Average)

Jul-17

Jul-21

Jul-18

Jul-19

Jul-22

Jan-17

Jan-21

Jan-18

Jul-20

Jan-19

Jan-22

Jan-23

Jan-20

Source: Deutsche Bundesbank, Federal Reserve Bank of New York, Moody’s Analytics *Index refers to standard deviations from average value.

%

Despite this fall in the second half of the year, leasing activity was still strong—25% above its five-year average of 30 million sqm—and we expect this trend to continue, albeit below the record highs recorded in recent years. In a normal, non-pandemic economy, these record volumes would be viewed largely as unsustainable, because some e-commerce demand was pulled forward as operators had to scale sooner and faster than they otherwise would have. The past few years have been exceptional for logistics, with the sector taking advantage of the shifts in demand patterns, technological advances and businesses altering business models.

UK

Italy

Spain

France

Poland

Ireland

Hungary

Netherlands

Czech Republic

Source: Cushman & Wakefield Research

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