Technology, urbanisation and globalisation will determine winners in logistics sector

Technology, urbanisation and globalisation will drive future returns in the logistics sector in Europe, according to a report published this month by Savills: European Logistics: Warehousing the Future.

These factors support two existing logistics corridors in Europe and will help drive the expansion of a new corridor eastwards, according to the report. The crescent-shaped corridors include what Savills has dubbed the ‘purple banana’ stretching from the established North-South axis in Western Europe to Warsaw in Central and Eastern Europe. The report reveals that Europe’s logistics network could expand eastwards to meet the New Silk Road’s westward reach, supporting the new corridor, which would give rise to new economic centres and logistics hubs.

‘Around $1trn is being invested in the New Silk Road to connect China and Asia as a whole via the former USSR countries to Europe,’ Andreas Trumpp, head of research Germany at Savills, told REFIRE. ‘China is expanding its trade network across the globe. At the moment, it normally takes goods 16 days via this route versus 28 days by sea. Once the route is modernized, we think it could take just 10 to 12 days. One of the problems that needs to be resolved is the number of train networks on the route. There are a number of them, which slows it down when you have to change trains often.’

Globalisation is manifesting itself most clearly in the development of the New Silk Road, according to the report, in its rising network of railways, highways, pipelines, special economic zones, commercial centres and logistics hubs spanning from Central China to Western Europe. The area connected by this corridor includes around 70% of the world’s population, 75% of world energy resources and 70% of global GDP, according to the Royal Institute of Chartered Surveyors in the UK.

Over in Germany, there have been €6.9b of logistics deals this year, a rise of 56% y-on-y, according to Trumpp. And, as a result, there is enormous demand for logistics space, both in Germany and in other European countries.

‘The logistics sector is growing by 2% to 3% a year, in terms of general turnover and we’re confident that logistics will benefit from growing GDP in Europe,’ said Trumpp. ‘So far this year, e-commerce is one of the main drivers. For every €1b of extra online sales, a company typically needs around 77,000 sqm of extra logistics space. As such, we estimate that 15 million sqm of new logistics space will be needed in Europe by 2021.’

Digitalisation and automation are also redefining the logistics space, according to the report. Online shopping is poised to more than double from 8% of the retail market in Europe in 2016 to up to 25% by 2030, according to the Centre for Retail Research and Produce Business UK.

Rising urbanisation is also having an impact on logistics. Savills maintains that cities which adapt to urbanisation and incorporate logistics assets will lead the next real estate cycle. This is especially true of cities in those countries where the share of online retail sales is at the highest level, between 5% and 6%, and rising.

The logistics sector is the single biggest European Union industry, generating revenue of more than €900b and representing just under 7% of total GDP. It employs more than 7 million people, according to Eurostat.