Identifying New Demand Impulses

The only constant regarding logistics real estate demand is change.

This change applies not only to leasing volumes but also to emerging sectors and new market entrants. This article reviews potential new demand impulses for the logistic sector in Europe, all occurring during a period of increased geopolitical tension, continued technological innovations, and a challenged macroeconomic environment.

Key Learnings:

• Demand is normalizing and has proven resilient in the face of challenging overall market conditions.
• Ongoing changes in market dynamics fuel new demand impulses and can be classified into three different categories:

1. Expanding and diversifying e-commerce: Continued e-commerce growth with new demand impulses from groceries and Fast Fashion.
2. Supply chain reliability and agility: Nearshoring, along with the proximity and diversification of suppliers, and decentralization of supply chains, creates new demand potential.
3. New technologies and alternative energies: Growth is driven by emerging technologies like battery manufacturing, electric vehicles, and semiconductors.

• Retail and supply chain trends continue to emphasize the importance of proximity, connectivity, and labour as location requirements. There is a growing attractiveness of rural areas, especially for demand generated by energy innovations

A key reason for this resilience is the importance of structural demand drivers. As covered in our “Why Invest in Europe” article, the growth of occupied stock almost doubled while economic growth was ~14% during the period 2013-2023 across nine countries analysed. This is an important characteristic, especially when considering that the European market functions amidst heightened geopolitical tensions and challenging economic conditions. In Germany, many sentiment indicators are still in negative territory, but they have shown a slight improvement in recent months, as evidenced by the Ifo Institute’s Business Climate Index. Even the automotive sub-index has recovered from its low level over the last 12 months.

New demand impulses: Emerging trends unlock new demand potential in evolving markets.

Just as economies, consumer habits, and technologies evolve, so do sources of demand. GARBE research has identified three different types of emerging demand categories.
The first one is ‘expanding and diversifying e-commerce’. After a pause in 2022 and 2023, e-commerce penetration and online sales are forecast to rise across Europe over the next 5 years . All e-commerce sectors are projected to experience growth, but market shares are shifting. The sectors expected to make the greatest gains in market share are the emerging sectors of Food, Furniture and Fashion. Electronics and Media were among the first sectors to move online, and their market share is expected to plateau.

In e-commerce, new platforms are emerging, such as social commerce, integrating e-commerce and social media, with an expected sales growth by almost 70% in the period 2023-2027 in Europe.

At the same time, the peak of quick commerce seems to have passed, as competition is too intense and the profitability of business models is challenging for many. Recently, Getir and Gorillas announced their intention to exit the German market, positioning Flink as Germany’s market leader.

Impact on locations: Main drivers of proximity, connectivity and labour remain in place, but energy opens opportunities for rural areas.

The three identified categories are expected to fuel an incremental rise in demand across the European logistic market.

• Regarding ‘Expanding & Diversifying e-commerce’, demand is primarily focused on areas near urban concentrations to balance costs and service levels. However, securing space in these locations can be challenging due to the low availability of product. Many urban areas still show low vacancy rates, generally below 3% in many Western European markets.
• For ‘Supply chain resiliency & Agility’, hotspots offer either excellent connectivity (including air and sea ports) or provide a skilled workforce at competitive rates, with CEE markets being the primary target markets.
• The third category, ‘New Technologies & Alternative Energies’, is becoming more widespread across Europe. A deep pool of skilled labour has long been a key location factor, but access to energy is rapidly emerging as another primary driver. Energy is expected to benefit rural areas as well, potentially leading to new patterns of desired locations. In Germany, rural areas often have an industrial structure already in place, and more than three-quarters of the net capacity for generating solar and wind energy is installed in these regions. This contributes to their relatively high ranking in the IW Regional Ranking 2024, where 22 rural regions are positioned in the top 50, particularly in Northern Germany, close to energy hubs. An example of this trend is the development of the Northvolt battery factory in Heide, Schleswig-Holstein, whose battery production will rely to 100% on green energy.

Wrapping up:

Over the last few decades, the logistic sector has undergone drastic changes as new demand drivers have emerged. This trend is not expected to slow any time soon, as new demand impulses are visible on the horizon. Rather than revolutionising the sector, these impulses reflect its ongoing evolution.

The ‘bread and butter’ demand that serves daily needs and makes modern life possible remains a constant, but new layers of demand are expected to emerge. These new demand trends are fuelled by overarching trends, including changing consumer habits, an increased focus on resilience, agility and technological innovations.