Logistics & Industrial: FY21 Overview
Investment volume in the Industrial & Logistics Sector (I+L) reached a record figure of c.€2,630 million in FY21 (+75% vs. FY20), representing c.20% of all Real Estate investment volume – and expected to further reach c.35% by FY22. The logistics sector continues to be one of the main targets, positioning itself as the second asset class chosen by investors.
Although there is short-term pessimism regarding inflation (mainly driven by the energy crisis in Europe and the Russia-Ukraine conflict), Spain´s GDP is still forecast to grow at 5.5% throughout FY22 and pre-pandemic levels could be reached by FY23. The e-commerce market continues to show strength with a persistent increase in revenues in FY21 (+16% vs. FY20) especially driven by the food sector. By FY25, revenues are forecasted to reach €48 Bn (+68% vs. FY21) which will ultimately boost demand for logistics space.
Over a third of the operations carried out in FY21 were land transactions for the development of logistics platforms, but the availability of land for this purpose remains scarce, especially in areas nearby the main cities. There is also a significant amount of unsatisfied demand (due to limited supply) looking for prime locations in the hope of optimizing delivery times and costs. This, alongside with the rising land values and construction costs, will continue to put upward pressure on rents in these areas. Prime rents in Madrid currently stand at c.€5.95/sq.m./month (+8% vs. FY20), while Barcelona´s stand at c.€7.0/sq.m./month (+3% vs. FY20).
Madrid and Barcelona are the leading markets with c.55% and c.25% of total investment in Spain. By FY22, we expect around 600,000 sq.m. of new logistics product under construction to be added to the market in Madrid and 300,000 sq.m. in Barcelona. Take-up in Madrid accounted for c.1,150,000 sq.m. (+21% vs. FY20), and c.885,000 sq.m. in the case of Barcelona (+129% vs. FY20). Vacancy rates remained constant in Madrid standing at 9.6% and slightly increased in Barcelona to 3.0%, however, availability still cannot cover growing demand.
Prime yields experienced a continued compression throughout the year, reaching 3.8% in both Madrid and Barcelona– the lowest levels ever recorded by the sector and for the first time below 4%. This yield compression and the resilience of prime rents have driven up capital values considerably, with an impressive +28% y-o-y in Madrid.
From CG Capital Europe, we expect logistics assets that will attract the higher interest will be Last Mile Logistic Assets with a secure income stream, tenants in strong business sectors (e.g., e-commerce/food) and modern buildings with access to good transport infrastructure. We also remain confident on the growing popularity of this asset class, and the fact it will reach 40% of all real estate investment by the end of this year.