The European logistics sector has seen a substantial increase in investment flows owing to relatively high yields, stable income and undersupply in a booming e-commerce sector.

The exponential growth of online retail is leading to structural changes in demand for storage, particularly in the need for urban logistics centres offering last-mile warehouse solutions. This demand and supply imbalance has created attractive dynamics for institutional investors seeking growth and diversification in their broader real estate portfolios. As investment activity in the sector has increased, transparency and liquidity has allowed the sector to mature into a secure and defensive asset class.

Highly densely populated areas support stronger retail activity, and it is estimated that currently three quarters of European leases are in urban areas with more than 1 million inhabitants. Within the Eurozone, the most attractive regions have been the Benelux, Germany, France and northern Italy and Spain. A growing trend in Central and Eastern European has been the expansion of transport and storage given its strategic location, growing e-commerce and low cost base which is driving the demand for logistics space. Attractive yields in comparison to more mature markets and the commercial sector offers institutional investors opportunity for asset appreciation and rental growth. The Nordics also offer strong rental growth and yields compared with more mature regions owing to their mature e-commerce markets, highly digital economies and advanced level of infrastructure.

Innovation and technology in supply chains continue to play a key role in the evolution of the logistics sector by increasing efficiency and optimising delivery rates. The use of drones, self-driving vehicles, Artificial intelligence and experimentation with blockchain technology all have the potential to fully automate and streamline warehousing processes, thereby increasing rents and fuelling asset growth.

For investors seeking returns in the logistics sector, the importance of finding the best assets in the fastest growing markets is key. In European markets where demand drivers are strong, vacancy rates are low and structural fundamentals are strong, the growth opportunity for institutional investors is expected to be robust over the coming years.

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