Logistics Pan-European diversification
Another option for distribution-seeking investors is to expand into other higher-yielding European markets. Prime logistics yields of 4.25% in the Czech Republic, 4.35% in Poland and 3.95% in Italy are clearly appealing relative to Germany (figure 1). Occupier demand for quality stock in these markets is rising and land supply in the top locations is tight.
Not only will pan-European diversification bolster distributions, but it also spreads income risk by gaining exposure to assets and occupiers subject to different country dynamics. This reflects both the unique economic prospects of each European country and, of particular relevance to logistics performance, differing stages of online retail market maturity.
Countries with ecommerce penetration of below 10% of total retail spending are immature. Analysis from mature markets such as the UK and Netherlands demonstrates when penetration rises above 10%, logistics occupier demand also accelerates. The demand impetus typically proceeds faster than the supply response, especially given it is increasingly hard to find sites and gain permission for new logistics development, leading to rapidly escalating rents. Rental growth tends to endure when markets reach maturity above 18% penetration as occupiers seek to consolidate their distribution networks to maintain market share.
Many European countries have recently entered the maturing stage of ecommerce growth (figure 2). In addition to Germany (16% online penetration in 2022 according to CBRE) these include the large Italian (10%) and Central and Eastern Europe economies (14% and 17% in Poland and Czech Republic respectively). This bodes well for future rental growth prospects in these countries and those who invest there.
Wise pan-European diversification requires a robust understanding of local market dynamics. Whilst logistics stock is fairly generic, local country particularities have a significant impact on return prospects and requires granular market expertise in order to make informed decisions.