Embed Size (px)
Citation preview
Part of the M&G Group For investment professionals only
Magnify:The opportunity in European logistics
Sept
embe
r 201
7
2
1 Source: Prologis and M&G Real Estate based on JLL data.
Overview
Investor interest in the European logistics sector
continues to rise, in part due to the relatively attractive
yields on offer compared to other sectors. Structural
drivers, including urbanisation, e-commerce and
reshoring trends, are also set to contribute further to
the maturity of the sector. At M&G Real Estate, we
have evaluated the physical and digital initiatives that
underpin this transition and ultimately drive increased
demand for logistics space, leading to stronger rental
growth in the long term.
In this paper, we evaluate both the Trans-European
Transport Network (TEN-T) infrastructure programme,
launched by the European Commission (EC) in 2015,
as well as the Digital Single Market (DSM) legislative
proposals, implemented across European Union (EU)
member states earlier this year. The progress of DSM
initiatives by member states is measured by a recently
launched Eurostat indicator – the Digital Economy &
Society Index (DESI) scoreboard.
Alongside these drivers, we assess the cyclical
performance of continental Europe’s logistics sector
versus both the US and the UK – early adopters of
e-commerce and the first markets to recover following
the Global Financial Crisis (GFC). Whilst logistics vacancy
rates across Europe have halved during the last five years
to a new record low of 5.5%, rental growth is still only
evident in a handful of markets. In fact, rents in many
logistics markets are yet to recover following the GFC
and sit on average still 4% below their pre-crisis peak.1
With European logistics now entering what we believe
to be the early stages of its growth cycle, we have used
our analysis in forecasting logistics rents. The results
highlight the outperformance we expect from the overall
sector and help us to identify those markets where rental
growth has the potential to be strongest. We have
then evaluated the most attractive markets today in
terms of value and long term rental growth prospects.
With logistics yields having moved significantly lower in
recent years, these two traits are increasingly important
for investors searching for capital growth to deliver
attractive overall returns.
Rental growth and vacancy
Finland-1.6 6.0
Belgium0.0 1.2
Netherlands0.0 6.7
Germany1.0 4.2
France 0.4 3.7
Spain2.6 4.0
Italy1.6 2.0
Poland0.0 7.3
Czech Republic0.0 4.7
Denmark2.2 2.3
Sweden0.0 3.5
Executive summary
• Physical and digital drivers are shaping the logistics landscape and increasing demand for space
• European logistics now at the early stages of rental growth cycle, having lagged the UK and US
• Nordic, CEE and Southern European logistics markets offer most opportunity for attractive returns
• Identifying value and best rental growth potential will help secure strong future returns
Rental Growth 2015-16 (% pa) Vacancy 16/17 (%)
Source: M&G Real Estate using JLL data.
3
Physical logistics drivers: Transport infrastructure
The European logistics sector is gaining recognition as a core pillar of economic growth, driven by increasing demand
from consumers for ‘everything, everywhere, anytime’. Often overlooked, but forming the foundation of logistics is the
infrastructure network which facilitates the movement of goods across the continent, determining both the speed and
cost of each journey.
World Bank’s Logistics Performance Index 20162
Top 10 Global Nations Rank Bottom 10 EU Nations RankGermany 1 Hungary 31
Luxembourg 2 Poland 33
Sweden 3 Portugal 36
Netherlands 4 Estonia 38
Singapore 5 Latvia 43
Belgium 6 Greece 47
Austria 7 Slovenia 50
UK 8 Croatia 51
Hong Kong 9 Romania 60
US 10 Bulgaria 72
Several of the more advanced European countries are
already global leaders when it comes to logistics, taking
seven out of the top ten spots for overall performance
(World Bank’s Logistics Performance Index 2016).
However, to keep up with the increasing demands
of a consumer-driven economy, future infrastructure
investment across the EU will be crucial. Although
western European nations individually rank highly, the
index says nothing about the interconnectivity of these
states as a whole and with the rest of Europe. Southern
Europe and the Central and Eastern European (CEE)
nations currently lag their western European neighbours
by some margin.
Since 2011, international road freight across Europe has
grown by 10%, while domestic road freight has dropped
by 4%, highlighting the importance of interconnectivity.
Cross-border freight travels an average of 640km from
source to end user, equating to a journey roughly from
the Port of Rotterdam in the Netherlands to the city of
Berlin in Germany. The inconsistency of infrastructure
quality across EU states therefore poses a significant
problem for the cross-border movement of goods.
Top/bottom EU market by infrastructure quality
Quality of Rail-RoadInfrastructure
Quality of Air TransportInfrastructure
Quality of PortInfrastructure
Qualityof Roads
Romania
Netherlands
EU Average
Source: M&G Real Estate, Global Competitiveness Report: Infrastructure Quality Index 2017.
The World Economic Forum’s Global Competitiveness
report illustrates this gulf between EU members.
Infrastructure is listed as one of the 12 key pillars of
competitiveness that drives productivity and economic
growth, yet the quality of infrastructure still varies
significantly across the EU. Road infrastructure in the
Netherlands, for example, is ranked 4th out of 138
in the world. This compares to Romania where road
infrastructure is deemed to be amongst the worst
in the world, ranking 128th. Other low performers
include Poland (72nd), Czech Republic (65th) and even
Italy (46th).
2 Index based on surveys of global logistics professionals and measures variables including quality of transport infrastructure and customs and border efficiency.
4
The TEN-T Infrastructure Project
Unlocking faster, cheaper, more efficient logistics through inter-modal transportThe importance of building a modern and efficient
infrastructure network has been recognised by the EC.
To improve the speed, cost and ease of logistics across
the EU, the EC has identified some €700 billion of
infrastructure improvements to be carried out by 2030
across 2,500 projects, as part of the TEN-T programme.
The purpose of this investment is to optimise existing
infrastructure along nine pre-identified core network
corridors that dissect Europe from north to south, east
to west. This will promote intelligent, more efficient
transport systems and integrate urban areas into core
logistics corridors. By improving efficiency, the scheme
will also move towards cleaner transport solutions, an
area where the logistics sector continues to fall down.
These corridors will more effectively link 94 ports, 38
airports and tackle 35 major cross-border projects,
thereby contributing to European cohesion and a more
competitive economy. With the cost of logistics in
the EU currently representing around 15% of the end
product’s value, this legislation aims to half these costs
by better facilitating cross-border trade.
TEN-T Core network
Core Network Corridors Connected CountriesScandinavian-Mediterranean FI, SE, DK, DE, AT, IT
North Sea-Baltic NL, DE, BE, PL
North Sea-Mediterranean UK, BE, FR
Baltic-Adriatic PL, CZ, HR, IT
Orient/East-Med DE, AT, HU, EL
Rhine-Alpine NL, DE, FR, IT
Atlantic DE, FR, ES, PT
Rhine-Danube DE, AT, CZ, HU
Mediterranean ES, FR, IT, HR, HU
EdinburghGlasgow
Belfast
Dublin
Cork
Liverpool
Manchester
FelixstoweBirmingham
London
Southampton Dover
Lille
Amsterdam
UtrechtRotterdam
Paris
LuxemburgLe Havre
Bordeaux
AntwerpGentBrussels
CologneFrankfurt
Frankfurt/Oder
Hannover
HamburgBremen
Osnabrück
Düsseldorf
Calais
StuttgartMunich
Verona
TarragonaPortoBarcelona
Valencia
Cartagena
Sevilla
Lisbon
Zaragoza
Madrid
Milan
TurinLyon
Zeebrugge
Mannheim
Rome
Bologna
Naples
Strasbourg
MurciaSines
Marseille
Liege
Helsinki
Stockholm
Oslo
Bilbao
Aveiro
Algeciras
Antequera/Bobadilla
Valladolid
Genova
Novara
DijonBasel
Copenhagen
Gothenburg
Malmö
Trelleborg Gdynia/Gdansk
Klaipeda
VentspilsRiga
Vilnius
Tallinn
HaminaKotka
Turku/Naantali
Örebro
La Spezia
Livorno
Valetta
Palermo
Gioia Tauro
Taranto
Bari
Ancona
Ravenna
Arad
Timișoara
Brașov
Bucharest
Sofia
Thessaloniki
Athens/Piraeus
Patras
Constanța
Sulina
Burgas
LimasolLefkosia
ZagrebLjubljana
Graz
Bratislava
Ostrava
Zilina
Vienna
Venice
UdineKlagenfurtInnsbruck
WürzburgNuremberg
Magdeburg
Rostock
RegensburgPassau
Prague
Wels/Linz
Szczecin/Swinoujscie
Poznan
WroclawWarsaw
Katowice
Budapest
Craiova
Igoumenitsa
TriesteRijeka
Brno
Berlin
Dresden
Koper
EdinburghGlasgow
Belfast
Dublin
Cork
Liverpool
Manchester
FelixstoweBirmingham
London
Southampton Dover
Lille
Amsterdam
UtrechtRotterdam
Paris
LuxemburgLe Havre
Bordeaux
AntwerpGentBrussels
CologneFrankfurt
Frankfurt/Oder
Hannover
HamburgBremen
Osnabrück
Düsseldorf
Calais
StuttgartMunich
Verona
TarragonaPortoBarcelona
Valencia
Cartagena
Sevilla
Lisbon
Zaragoza
Madrid
Milan
TurinLyon
Zeebrugge
Mannheim
Rome
Bologna
Naples
Strasbourg
MurciaSines
Marseille
Liege
Helsinki
Stockholm
Oslo
Bilbao
Aveiro
Algeciras
Antequera/Bobadilla
Valladolid
Genova
Novara
DijonBasel
Copenhagen
Gothenburg
Malmö
Trelleborg Gdynia/Gdansk
Klaipeda
VentspilsRiga
Vilnius
Tallinn
HaminaKotka
Turku/Naantali
Örebro
La Spezia
Livorno
Valetta
Palermo
Gioia Tauro
Taranto
Bari
Ancona
Ravenna
Arad
Timișoara
Brașov
Bucharest
Sofia
Thessaloniki
Athens/Piraeus
Patras
Constanța
Sulina
Burgas
LimasolLefkosia
ZagrebLjubljana
Graz
Bratislava
Ostrava
Zilina
Vienna
Venice
UdineKlagenfurtInnsbruck
WürzburgNuremberg
Magdeburg
Rostock
RegensburgPassau
Prague
Wels/Linz
Szczecin/Swinoujscie
Poznan
WroclawWarsaw
Katowice
Budapest
Craiova
Igoumenitsa
TriesteRijeka
Brno
Berlin
Dresden
Koper
Source: European Commission.
5
Case Study: CEE and PolandOne of the key areas identified for infrastructure
investment is Poland. Alongside other CEE nations,
Poland stands to benefit from improvements to
both the North Sea-Baltic and Baltic-Adriatic network
corridors. Recent investment of €12.2 billion has been
used to modernise cross-border sections with Germany
and the Czech Republic, and improve road and rail
connectivity with Warsaw, Poznan and Lodz. A further
52 infrastructure projects have so far been identified in
Poland amounting to €27.6 billion, the highest of any EU
state to be invested over the medium term.
Transport Infrastructure spending under Ten-T
Source: Eurostat 2017.
Taking CEE nations as a whole, committed future
investment in transport infrastructure projects is
expected to amount to a further €54bn, considerably
more than any other part of Europe. With a focus on
improving the road, rail and port transport networks, this
injection of capital is expected to bring eastern Europe
in line with its western neighbours and the European
market average. We believe this investment will both
improve the overall logistics performance of CEE markets
and support increased demand for logistics space,
leading to stronger rental growth in core hub locations
which benefit from these structural improvements.
Removing barriers and boosting freight levels
Freight transport activity % change 2020-50
Source: Eurostat 2017.
Consumer demand for quick and easy access to goods
is already having a substantial impact on freight levels
within the EU. By investing in transport infrastructure,
the TEN-T programme should pave the way for a more
efficient logistics system which can adapt to further
increases in demand. Using figures provided by Eurostat,
freight volumes across the EU are expected to increase
36% by 2050. CEE markets stand to see some of the
largest growth with Poland (54%) and Czech Republic
(46%) well above average. As freight volumes increase,
demand for logistics space will naturally follow. Given
the relative lack of institutional grade logistics stock
across Europe compared to office and retail, this should
open up further opportunities for investors in this sector.
MSCI Continental European Investible Universe (2016)
Retail: €377bn (23%)
Office: €732bn (44%)
Industrial/logistics: €106bn (6%)
Residential: €305bn (19%)
Hotel: €29bn (2%)
Other: €81bn (6%)
Infr
ast
ruc
ture
sp
en
din
g, €
BN
Committed Future Transport Infrastructure Investment (€bn)
Transport Infrastructure Investment since 2007 (€bn)
Other0
20
40
60
80
100
120
140
160
180
Nordics Benelux CEE Core Peripherals
Fre
igh
t A
cti
vity
, % c
ha
ng
e 2
02
0-5
0
Ne
the
rla
nd
s
Ge
rma
ny
UK
Ita
ly
Po
rtu
ga
l
Sp
ain
Au
stri
a
Eu
rop
ea
n U
nio
n 2
8
Fin
lan
d
De
nm
ark
Sw
ed
en
Fra
nce
Cze
ch R
ep
ub
lic
Be
lgiu
m
Po
lan
d
Luxe
mb
ou
rg
Ire
lan
d
0
10
20
30
40
50
60
70
A further 52 infrastructure projects have
so far been identified in Poland amounting
to €27.6 billion, the highest of any EU state
to be invested over the medium term.
CEE markets stand to see some of the
largest growth with Poland (54%) and
Czech Republic (46%) well above average.
6
Digital logistics drivers: Connectivity infrastructure
Alongside the physical infrastructure that allows for
the movement of goods, the digital economy is also
fundamental to enabling e-commerce to expand
internationally. Online sales today provide a strong
indication of the most advanced e-commerce markets
and the extent of digital advancement across Europe.
The figures highlight a north-south divide, with turnover
concentrated in the core markets of the UK, France and
Germany. Yet future growth prospects in both southern
European and CEE markets may also offer opportunities
for investors, as online activity accelerates more quickly
versus more established regions. Amazon, for example,
have already established several large-scale distribution
facilities in both Spain and Italy and are in the process
of expanding their southern European network further,
including express delivery centres in city centre markets.
Online sales in Europe by region, 2016 (€ billion)
UK: €157
France: €65
Germany: €60
Rest of Europe: €174
Source: BNP Paribas Real Estate.
Without further technological change, however, online
sales are likely to remain domestically focused, as
consumers avoid international retailers and the
transactional barriers associated with them, opting
instead for ease of purchase in their home countries.
The Digital Single Market (DSM) aims to tackle these
transactional barriers through initiatives outlined in
the next section. Funding of €21 billion will be directed
at mobilising and enhancing the digital economy,
alongside the promotion of both private equity and
venture capital schemes. This will positively impact the
European logistics sector.
Digital Single MarketAccording to the European Commission (EC), around
three-quarters of Europeans use the internet on a regular
basis, but only 15% shop online from another country.
Many online stores across the continent regularly refuse
custom from other countries, charging higher prices to
international customers and in some cases blocking
them. Between 2013 and 2015, the European Consumer
Centre received a total of 532 complaints from customers
unable to shop freely online, representing a 140%
increase compared to 2010 to 2012.3
Unlocking e-commerce potential by stopping geo-blocking practices
For you?€20!
For you?€10!
For you?€15!
Adopted in 2015 by the EC and introduced across EU
member states earlier this year, the DSM initiative aims
to open up digital opportunities across Europe, allowing
the free movement of persons, services and capital. This
could contribute €415 billion pa to the EU economy and
create hundreds of thousands of new jobs according
to the EC. In this inclusive competitive environment,
individuals and businesses can access and exercise
online activities with a high level of consumer and
personal data protection, irrespective of their nationality
or place of residence.
3 “Do invisible borders still restrict consumer access to services in the EU?”. Analysis of Article 20.2 of the Services Directive relating consumer complaints reported to ECC.
Future growth prospects
in both southern European
and CEE markets may
offer opportunities for investors.
The DSM initiative aims to open up
digital opportunities across Europe,
allowing the free movement of
persons, services and capital.
7
Tackling geo-blocking
One key consumer issue the DSM will tackle is geo-
blocking, a practice used for commercial reasons
by online sellers that denies access to websites in
other states. Other objectives include reducing
parcel delivery costs and simplifying VAT compliance
arrangements for online businesses wishing to trade in
another EU country.
By understanding the impact of this legislation and the
extent and pace that digital technology and consumer
habits are changing, we can determine which parts
of Europe will benefit most from e-commerce and
therefore predict the requirements from retailers and
logistics operators for real estate. At M&G Real Estate we
have used the EC’s Digital Economy and Society Index
(DESI) outlined below as a measure to monitor and
track this progress across Europe.
Digital Economy and Society IndexThe DESI measures the digital performance and
competitiveness of EU member states. The index
reflects five principal policy areas which, including sub-
categories, represent more than 30 indicators:4
• Connectivity: how widespread, fast and affordable
broadband is
• Human Capital/Digital Skills: the digital skills of the
population and workforce
• Use of Internet: the use of online activities from
shopping to news or banking
• Integration of Digital Technology: how businesses
integrate key digital technologies, such as e-invoices,
cloud services and e-commerce turnover
• Digital Public Services: such as e-government
and e-health
At a country level, DESI aims to help EU countries
identify priority areas requiring investment and action
to create a unified and cohesive Digital Single Market.
EU DESI scores
DESI: 5 dimensions
1 Connectivity
3 Use of Internet
2 HumanCapital/
Digital Skills
4 Integration of Digital Technology
5 Digital Public
Services
EU28 DESI 2016
EU28 DESI 2013
DESI: Reweighted using logistics drivers
1 Connectivity
3 Use of Internet 4 Integration of Digital Technology
EU28 DESI 2016
EU28 DESI 2013
Source: M&G Real Estate, European Commission Digital Scoreboard.
To monitor the expansion of e-commerce across EU
states and its impact on European logistics, we identified
connectivity, use of internet and integration of digital technology as the most relevant factors. The
following analysis reviews the re-weighted scores of
these three indicators across member states in 2016,
and their aggregate progress since DESI’s inception in
2013. While select countries are clearly ahead, having
already established themselves as digitally advanced
markets (those that score above the EU average),
others are playing ‘catch up’ (those that score below
the EU average but whose score grew faster than that
of the EU since 2013). Although at an earlier stage in
their growth cycle, we expect this latter group to also
provide opportunities in the logistics market, as their
digital economies evolve and consumer habits across
continental Europe become more aligned.
4 Sub category definitions: http://digital-agenda-data.eu/datasets/desi/indicators.
We can determine which parts of Europe
will benefit most from e-commerce
and therefore predict the requirements
from retailers and logistics operators
for real estate.
While select countries are clearly ahead,
having already established themselves
as digitally advanced markets (those
that score above the EU average), others
are playing ‘catch up’.
8
DESI re-weighted scores relevant to logistics, 2016
Source: M&G Real Estate, European Commission Digital Scoreboard 2017.
DESI re-weighted dimensions relevant to logistics – by region: % changes 2013-16
Source: M&G Real Estate, European Commission Digital Scoreboard 2017.
Based on the three selected DESI dimensions, the Nordic
and Benelux countries lead the 2016 ranking whilst
the CEE and southern European markets occupy the
bottom positions. This is largely a reflection of higher
digital connectivity and e-commerce turnover figures.
The following analysis highlights which countries are
catching up the fastest by adopting digital technologies.
Based on DESI score growth rates since 2013, the
regional differences outlined above have reversed,
with southern Europe and Poland now ranking above
the EU28 average. These regions have adopted DESI
initiatives at a faster rate, on average moving up two
places each in the overall rankings. They saw particularly
strong growth, of 35%, within the Connectivity and
Integration of Digital Technology sub-sectors.
Belgium and Ireland are the outliers, consistently
ranking above the EU28 average. The faster
progress of non-core markets reflects the continued
integration and cohesion of Europe, as the continent
moves towards an increasingly level playing field for
international consumers.
DE
SI
Lo
gis
tic
s: A
gg
reg
ate
sco
res
0
10
20
30
40
50
60
80
70
De
nm
ark
Sw
ed
en
Ne
the
rla
nd
s
Be
lgiu
m
Fin
lan
d
UK
Ire
lan
d
Ge
rma
ny
Po
rtu
ga
l
Eu
rop
ea
n U
nio
n 2
8
Sp
ain
Cze
ch R
ep
ub
lic
Fra
nce
Ita
ly
Po
lan
d
Integration of Digital Technology Use of Internet Connectivity
DE
SI
log
isti
cs
tota
l %
ch
an
ge
s 2
01
3-1
6
Ita
ly
Ire
lan
d
Sp
ain
Po
rtu
ga
l
Po
lan
d
Be
lgiu
m
Eu
rop
ea
n U
nio
n 2
8
Ne
the
rla
nd
s
Fra
nce
Ge
rma
ny
De
nm
ark
UK
Sw
ed
en
Fin
lan
d
0
20
40
60
80
100
120
140
Peripherals Central & Eastern Europe BeneluxCore Nordics
Based on the three selected DESI
dimensions, the Nordic and Benelux
countries lead the 2016 ranking
Based on DESI score growth rates since
2013, southern Europe and Poland now
rank above the EU28 average.
Impact on logistics rents
Taking into consideration both the TEN-T infrastructure
project and the structural changes to the digital market,
we have identified which markets offer the strongest
growth prospects today and in the future. Underlying
this is the current lag in continental European rental
growth versus other global markets such as the UK and
US. European logistics rents historically tracked these
markets to a high degree of correlation from 1991 to
2010 (0.76), yet during the most recent recovery period
from 2011-16, there has been a noticeable difference
with almost zero correlation (0.14) between Europe and
the UK/US.
Europe has historically recorded a greater degree of
volatility, driven by markets such as Ireland, Spain and
Portugal, which experienced extreme boom and bust
cycles over the last decade. EU instability over the last
five years has arguably held back rental growth, yet
both the retail and office sectors have seen a sizeable
recovery post-GFC, with prime rents now 30% and 10%
above their previous peaks respectively. Rents in the
logistics sector, however, are still 4% below. Only German
markets buck this trend with prime logistics rents now
4% higher than their previous peak.
9
Prime industrial rental growth (% pa)
Source: M&G Real Estate, JLL, PPR.
The UK and US were the earliest adopters of e-commerce
globally, underpinning their strength in logistics rents,
which have grown by 3.7% pa and 5.8% pa respectively
over the last three years. This compares to just 0.8% pa
for continental Europe, where consumer habits have,
in the past, been fragmented. Online sales continue to
gain momentum, however, as European states adopt
faster, cheaper and easier means of purchasing goods
through technological improvements. We believe these
factors will have a positive and substantial impact on
European logistics by increasing demand for space in
the medium term, as Europe ‘catches up’ with other
global markets. As the region enters a more advanced
stage of its growth cycle, we expect logistics rents to
outperform those in the US and the UK, which are closer
to the top of their respective cycles.
We have taken this into account, alongside the 2016
DESI scores which benchmark e-commerce growth, in
our logistics rent forecasts, favouring those markets with
the highest degree of digital capability and online use.
The results are shown below:
DESI score and our industrial rental growth forecasts
Source: M&G Real Estate, European Commission.
We believe those markets with the highest DESI
scores, ie benefitting from advanced integrated digital
technology, superior broadband infrastructure and
higher internet usage by consumers, will see a significant
improvement in logistics rental growth. This is typically
reflective of the Nordic and Benelux markets. Those
markets less currently advanced on the DESI scale, such
as Poland and Italy, may see a smaller benefit. However,
the pace at which their digital infrastructure is improving
should also be taken into account, as covered in the
next section. Given the evolving nature of e-commerce
and consumer habits, we will continue to monitor the
progression of these DESI scores, ensuring that we
reflect current market trends.
UK Europe US
Re
nta
l gro
wth
(%
)
Ecommerce driving
US / UK rents
-12
-10
-8
-6
-4
-2
0
2
4
6
8
10
16151413121110090807060504030201009998979695949392
4.0
3.5
3.0
2.5
2.0
1.5
1.0
35 55504540 60 65 7570
DESI score
Pri
me
ind
ust
ria
l re
nta
l gro
wth
20
17
-21
(%
pa
)
Sweden
Belgium
Czech Republic
Denmark
Finland
France
Germany
Ireland
Italy
NetherlandsPoland
Portugal
Spain
Peripherals Central & Eastern Europe Benelux Core Nordics
10
Where to find value?
The share of real estate investors targeting European
logistics has more than doubled from 27% in 2012
to 59% in 2016,5 compressing logistics property
yields by 190bps over this same period. Prime yields
across Germany now stand at 4.9%, the lowest across
continental Europe historically, which has solidified
European logistics as an institutionalised asset class.
This poses challenges for investors targeting the sector,
as competition increases and finding value in the market
becomes more difficult. While further yield compression
is expected, as low interest rates persist and the spread
between logistics yields and government bonds remains
attractive, we expect this compression to slow compared
to the last four years. For investors looking for growth in
the sector, the need to identify specific markets which
offer good value alongside attractive rental growth
prospects is becoming more important.
Rental growth vs prime logistics yieldsThe following chart plots our rental growth expectations
for the next five years against the latest prime yields,
highlighting the best opportunities for above average
total returns.
Rental growth vs prime logistics yields
Source: M&G Real Estate, JLL.
At a country level, we believe the Nordic markets
are amongst those offering greater opportunities to
investors. We expect Denmark to see some of the
strongest rental growth in Europe, yet at a 6% yield is
among those countries which also offers the best value.
Spain and the Czech Republic also offer relative value
alongside healthy rental growth. Yields in core markets
like France and Germany are at record lows, however,
having already compressed to 5% and 4.9% respectively.
Logistics rents in Germany have already surpassed
their 2007 peak and we expect rental growth here to
moderate going forward.
5 Source: CBRE.
For investors looking for growth in the
sector, the need to identify specific
markets which offer good value alongside
attractive rental growth prospects
is becoming more important.
We expect Denmark to see some of the
strongest rental growth in Europe, yet at
a 6% yield is among those countries which
also offers the best value.
7.0
6.5
6.0
5.5
5.0
4.5
1.0 3.02.52.01.5 3.5 4.0
Pri
me
Lo
gis
tics
Yie
lds
Q2
20
17
(%
)
Prime Rental Growth 17-21 (%pa)
Sweden
Belgium
Czech RepublicDenmark
Finland
FranceGermany
Ireland
Italy
Netherlands
PolandPortugal
Spain
Peripherals Central & Eastern Europe Benelux Core Nordics
11
Summary
The physical and digital logistics landscape in Europe
is set to change dramatically over the next decade,
driven by innovation, technological advancement and
growing consumer demand for online products. The
implications for the logistics real estate sector are
enormous. Our research has analysed these structural
changes and identified markets where we see the most
opportunity to benefit from increased demand, stronger
rental growth and good value. Given the recent investor
demand for this sector, having the skills and expertise
to capture this growth in an increasingly competitive
market is fundamental.
Our findings have shown that as a snapshot of the
European market, the Nordic regions offer some of the
most attractive opportunities to achieve above average
total returns. Their mature e-commerce markets, highly
digital economies and advanced level of infrastructure
offer significant potential for rental growth. With yields
ranging from 5.5% (Sweden) to 6% (Denmark), there
is also still considerable scope for further compression,
driving up returns.
As long term investors, we pay particular attention to
both the strengths in the market today and where we
see the greatest potential in the years ahead. With
southern Europe and Poland benefitting from faster
e-commerce growth and the bulk of future infrastructure
spending, we remain optimistic about the opportunities
here to find value. Whilst investors need to consider risk
when looking outside of the core markets of Germany
and France, there is a compelling argument for investing
in carefully selected assets in core logistics markets,
where demand drivers are strong, vacancies are low,
and the yields on offer can generate substantially better
returns. Given the structural drivers we have discussed
are focused on cohesion and interconnectivity across
Europe, from north to south, east to west, investors
should feel confident in targeting those overlooked
markets, where we believe the growth potential is
strongest and the returns outlook is the most attractive.
As long term investors, we pay particular
attention to both the strengths in the
market today and where we see the greatest
potential in the years ahead.
Identifying the e-commerce countries with the greatest change potentialConsidering the rate of change in DESI scores over the
last few years, we can also identify markets undergoing
the most significant change in e-commerce and
countries with the potential for most upside risk going
forward. The following chart plots the relationship
between the change in DESI scores from 2013 to 2016
and the latest prime yields.
DESI % change 2013-16 scores vs country prime logistics yields
Source: M&G Real Estate, JLL, European Commission.
The fastest improvers since 2013 on the DESI scale
have been the southern European markets alongside
Poland. We expect the pace of this growth to continue
as they play ‘catch up’ with the European average.
They also possess significantly higher yields. While not
as established as their northern European neighbours,
these countries can offer opportunities for skilled
investors looking to target improving growth markets at
relative value.
50% 130%110% 120%90% 100%60% 70% 80% 140% 150%
7.0
6.5
6.0
5.5
5.0
4.5
Pri
me
Lo
gis
tics
Yie
lds
Q2
20
17
(%
)
DESI Score & Change 2013-16
Sweden
Belgium
Czech Republic
Denmark
Finland
France
Germany
Ireland
Italy
Netherlands
Poland
Portugal
Spain
Peripherals Central & Eastern Europe Benelux Core Nordics
12
For Investment Professionals only. This document is for investment professionals only and should not be passed to anyone else as further distribution might be restricted or illegal in certain jurisdictions. The distribution of this document does not constitute an offer or solicitation. Past performance is not a guide to future performance. The value of investments can fall as well as rise. There is no guarantee that these investment strategies will work under all market conditions or are suitable for all investors and you should ensure you understand the risk profile of the products or services you plan to purchase. This document is issued by M&G Investment Management Limited (except if noted otherwise below). The services and products provided by M&G Investment Management Limited are available only to investors who come within the category of the Professional Client as defined in the Financial Conduct Authority’s
Handbook. They are not available to individual investors, who should not rely on this communication. Information given in this document has been obtained from, or based upon, sources believed by us to be reliable and accurate although M&G does not accept liability for the accuracy of the contents. M&G does not offer investment advice or make recommendations regarding investments. Opinions are subject to change without notice. Notice to recipients in Australia: M&G Investment Management Limited does not hold an Australian financial services licence and is exempt from the requirement to hold one for the financial services it provides. M&G Investment Management Limited is regulated by the Financial Conduct Authority under the laws of the UK which differ from Australian laws. Notice to recipients in Hong Kong: The contents of this document have not been reviewed by any regulatory authority in Hong Kong. If you have any doubt about any of the contents of this document, you should obtain independent professional advice. Notice to recipients in Singapore: This document is issued by M&G Real Estate Asia Pte Ltd. This document may not be circulated or distributed, whether directly or indirectly, to persons in Singapore other than (i) an institutional investor pursuant to Section 304 of the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”) or (ii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA. M&G Investments and M&G Real Estate are business names of M&G Investment Management Limited and are used by other companies within the Prudential Group.
M&G Investment Management Limited is registered in England and Wales under numbers 936683 with its registered office at Laurence Pountney Hill, London EC4R 0HH. M&G Investment Management Limited is authorised and regulated by the Financial Conduct Authority. M&G Real Estate Limited is registered in England and Wales under number 3852763 with its registered office at Laurence Pountney Hill, London EC4R 0HH. M&G Real Estate Limited forms part of the M&G Group of companies. M&G Investment Management Limited and M&G Real Estate Limited are indirect subsidiaries of Prudential plc of the United Kingdom. Prudential plc and its affiliated companies constitute one of the world’s leading financial services groups and is not affiliated in any manner with Prudential Financial, Inc, a company whose principal place of business is in the United States of America. DEC 17 / W252009
Alex Lund Associate: Property Research
+44 (0)20 7548 6555
Richard Gwilliam Head of Property Research
+44 (0)20 7548 6863
Stefan Cornelissen Director of Institutional Business Benelux, Nordics and Switzerland
+31 (0)20 799 7680
ContactsVanessa Muscarà Associate Director: Property Research
+44 (0)20 7548 6714
Christopher Andrews, CFA Head of Client Relationships and Marketing, Real Estate
+(65) 6436 5331
Lucy Williams Director, Institutional Business UK and Europe, Real Estate
+44 (0)20 7548 6585
www.mandgrealestate.com
![Video Magnification in Presence of Large Motions · compensated frame differences. Lagrangian approaches can only magnify motion changes [7,2], while Eulerian can magnify motion](https://img.pdfslide.us/doc/110x75/5fab1eb9dbc6eb1cf1708ac5/video-magniication-in-presence-of-large-motions-compensated-frame-differences.jpg)
