How long can it last?

Visiting logistics facilities is a big part of my working life. Not my favourite part – memories of teenage nights spent toiling away in a Shropshire butter factory may have something to do with that – but a necessary one in this booming sector.

Demand for logistics has never been greater. Whether it be mid-year annual returns hitting 23% in the United States or Birmingham becoming one of Europe’s top 10 traded markets, wherever you are, this sector is on fire. Rents are rising, yields are falling and logistics values are hitting record highs in almost every market we cover.

This is nothing new. According to our estimates, logistics has been the top performing sector globally for nine of the past 10 years. However, after such a long bull run, we see nervousness creeping into parts of the market. Investors are understandably asking just how long things can proceed at this pace.

Right now, there are few good reasons to suggest this
bull market is coming to an end. Investment momentum shows no signs of slowing, while near record low vacancy across Europe and the United States suggests rent will continue to move higher. On this basis, our latest forecasts show logistics topping the global hierarchy until the end of 2024.

Great news for those holding logistics, but not sufficient for a universal buy call. With yields at record lows and trending lower, expectation of higher rents seems implicit within current pricing. Indeed, strong and sustained rent growth is likely to be a key component of most acquisitions being underwritten today.

Why wouldn’t you make this assumption? Ecommerce growth looks to be a one-way bet and while no one exactly knows the future path of online sales, it seems pretty clear that we’re still a long way away from the peak. Recent increases in logistics operator costs may curb some of
the demand, however, many of these factors are likely
to prove temporary and are unlikely to be a major drag
on performance.