The sheer amount of packages now being shipped and delivered across Europe will, of itself, ensure a steady demand for new logistics capacity over the next four years, to judge by new figures released by Savills.
At least 8.6 million sqm of addition logistics space will be required in the region by 2025 to meet the rising demands of ecommerce, says Savills.
According to Mike Barnes of Savills European research team, the surge in online deliveries in 2020 as a result of the pandemic has led many retailers to re-consider their management of returns of products bought. "In order to manage and reduce the number of returns, many retailers are now likely to increasingly involve their shops in returns processing. So we expect omnichannel strategies to be further refined. Nevertheless, it is inevitable that demand for warehouse space will increase significantly, both in terms of new or existing stock and returns logistics."
Germany, as the largest market in Europe, is no exception. Jan Stemshorn, Director of Industrial Agency at Savills in Cologne, said: "The turnover of online retail is growing steadily. The provision of the storage capacities required for this will be the decisive driver in the German logistics real estate market in the coming years."
Estimates by market research companies Forrester Research and eMarketer put the amount of returns of all items purchased online at 20%. In Germany, returns are still most frequently dropped off at the branches of the major parcel service providers and forwarded from there. In countries such as the USA or Great Britain, on the other hand, partnerships are already being established with supermarkets or with companies like Uber. The fact that Germany has the highest rate of returns compared to other European countries is also due to the typical payment methods. In Germany, the amount is usually paid later by invoice or credit card and not directly at the time of purchase, as is the case in the UK, for example. Understandably, the willingness to return goods is likely to be higher for goods that have not yet been paid for.
Within Europe, Savills observes different approaches to dealing with returns. In the UK, for example, still the leader in the online shopping segment in Europe in 2020 with a 28% share of retail sales, online retailer Argos is using augmented reality to reduce the likelihood of returns. In the Netherlands, logistics providers are piloting door-to-door returns pick-up to facilitate returns and process received goods faster. Similar pilot projects are already taking place in Germany, for example by Zalando.
Despite all these efforts to reduce returns, Savills says the booming online trade will be unmanageable without additional logistics space. "We are not seeing any slowdown in the expansion of retailers' warehouse capacities - especially when you take into account the number of returns. It will be interesting to see if retailers will use brick-and-mortar shops more and more as an additional returns hub as they reopen after the lockdown," said Marcus de Minckwitz, Director for Regional Investment EMEA at Savills, adding, "What is clear is that there is no one-size-fits-all approach to merchandise returns, as convenience of purchase is paramount to consumers. Retailers, as well as parcel service providers, should take these changing preferences into account when planning their logistics."
While all of this should mean that rents in the logistics sector should be climbing relentlessly until this capacity has been met, in fact there are plenty of pockets where there is abundant vacancy in logistics and industrial property. With the pandemic having wiped out about 10.8% of industrial production, and 5% off Germany's GDP, plenty of warehouses are practically empty, with industrial warehouses having seen a fall of 2.2% over 2019, according to Peter Salostowitz, the CEO of sector consultancy IndustrialPort.
Often these properties are associated with the automotive or machine industries, which have been hardest hit. These are properties which can be used for production as well as storage, and are often outside the big population centres, making them unsuitable for agile ecommerce and last-mile delivery to the big urban populations. Salostowitz said: "I don't really see what's likely to lead to a recovery in these industrial properties, and hence not much recovery in rent levels." If anything, changes in the automotive industry and rising energy costs are likely to make such properties even less attractive, he said.
And the wider the gap between such properties and the much-in-demand modern logistics assets capable of handling the nimble needs of the food sector and others whose supply chain needs are for ever-closer proximity to their customers.
