/research2

Percentcontributiontoinflation

>0=positivesurprise

Jan-19

Jul-19

Jan-20

Jul-20

Jan-21

Jul-21

Jan-22

Jul-22

Jan-23

Jan-21

Mar-21

May-21

Jul-21

Sep-21

Nov-21

Jan-22

Mar-22

May-22

Jul-22

Sep-22

Nov-22

Jan-23

inflationthantheywerepreviously.

inenergyprices,whicharenowcontributingasmallerproportionto

EuropeanLogisticsOutlook

Amixedeconomicoutlook

Theimpactofrisinginterestratesandinflation’sstrainonhouseholdsbecameincreasinglyclearintheyear’sfinalquarter.Investorconfidencecontinuedtofalterinthelastmonthsoftheyear,leadingtoanotinsubstantialdeclineinannualinvestmentvolumesintothesectorandasignificantdeclinecomparedtoarecordQ4lastyear.Intheoccupiermarket,slowingconsumerdemandandrisingcostsbegantohitoccupiers,whichledtoasimilarfallinleasingactivityacrossEurope.

Crucially,CPIdatafromDecember2022showsthatinflationappearstohavepeakedandisnowdecliningintheUKandeuroarea,aswellastheUS.Intheeuroareathisfallhasbeenledbyadropin

energyprices,whicharenowcontributingasmallerproportiontoinflationthantheypreviouslywere.Whileinterestrateswillinevitablyfallatalagcomparedtotheinflationratesthatdrovethem,it'sworthnotingthatcentralbankshavebeguntostrikeamoredovishtone,suggestingwemaybeapproachingasimilarpeakininterestratesthisyear.

Whileadownturnisstillonthecards,manyanalystsexpectittobelesspronouncedthaninitiallyfeared.Indeed,theCitiEconomicSurpriseIndexfortheEurozone,whichmeasuresthedifferencebetweenofficialeconomicresultsandforecasts,reboundedfromalowpointinJuly2022andhassincerecordedsignificantoutperformancebythebloc

relativetoexpectedresults.

Thelogisticssector'sfortunesare

deeplylinkedtothoseoftheretailsector,

ofboththephysicalandonlinevarieties.

Basedonlong-termaverages,retail

occupiersinoneformoranotheraccount

for60%oftake-upinthelogisticssector,

sochallengingmarketconditionsonline

andonthehighstreetwillinevitably

adverselyaffecttheoccupiermarket.In

thisrespect,decliningretailsalesrelative

tothefive-yearaveragewillcertainly

alarmmanyoccupiersasconsumers

reducespendinginthefaceofthecost-

of-livingcrisis.Similarly,morelogistics-

heavyonlinesaleshavealsodeclined

significantlysincetheendofCovid-

erarestrictions,potentiallyreducing

occupiers'inventoryneeds.

Crucially,CPIdatafromDecember2022showsthatinflation

Area,aswellasintheUS.IntheEUthisfallhasbeenledbyadrop

appearstohavepeakedandisnowdecliningintheUKandEuro

Euroareainflationappearstohavepeaked

Euroareaeconomicindicatorsare

outperformingforecasts

12

10

8

6

4

2

0

FoodandEnergyGoodsandServicesTotal

200

150

100

50

0

-50

-100

UnitedStatesEuroAreaChina

-2

-150

Source:SavillsResearchusingMacrobond

Source:Citibank

/research3

Yearonyear,12monthmovingaverage

Jan-08

Nov-08

Sep-09

Jul-10

May-11

Mar-12

Jan-13

Nov-13

Sep-14

Jul-15

May-16

Mar-17

Jan-18

Nov-18

Sep-19

Jul-20

May-21

Mar-22

Z-score

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

EuropeanLogisticsOutlook

Despitethecost-of-livingcrisis,theconsumereconomyhassofarprovensurprisinglyresilientandisexpectedtorecoverthisyear.Aswepreviouslynoted,OxfordEconomicsforecastsshowflatconsumerspendinggrowth,afarcryfromthenegativegrowthseenin2009and2012.Onefactorinthisappearstobetherelativelyrobustlabourmarket.Whilethetechsectorhasseenseveralhigh-profileannouncementsofjobcuts,theoverall

labourmarkethasremainedrelativelyrobust,and,moreimportantly,householdunemploymentexpectationsremainpositive.

Indeed,whilehouseholdshavebeenquitedourabouttheoveralleconomicsituation,sentimentaroundtheirownfinancialsituationhasremainedstrong,whichwillprovidesupportforconsumption.

TheuniquesituationthatCovid-19,and

thefiscalstimulusthatfollowedit,creates

achallengingparadigmforoccupiers.

Aspandemicsavingshaveunwoundand

spendinghasrevertedtowardslong-term

trends,occupierswhohavebuilttheir

occupationalfootprintaroundCovid-era

trendsmaystrugglemorethanthosethat

tookamoreconservativeapproachwhen

tryingtofuture-prooftheirbusinesses.

Retailsaleshavestartedtofallsharply

Consumersentimentisbeingsupportedbypositiveemploymentexpectations

15

Balance

FinancialSituationofHousehold

UnemploymentExpectations(inverted)

EconomicSituation

4

EuroareaUnitedKingdomUnitedStates

3

10

2

5

1

0

0

-1

-2

-5

-3

-4

-10

-5

Source:SavillsResearchusingMacrobond

Source:OxfordEconomics

/research4

Millions

Take-up(sqm)

17Q2

17Q4

18Q2

18Q4

19Q2

19Q4

20Q2

20Q4

21Q2

21Q4

22Q2

22Q4

EuropeanLogisticsOutlook

Occupationaldemandedgesupinthefinalquarteroftheyear

Europeanlogisticstake-upreached8.3msqminthefinalquarteroftheyear.Consideringtheeconomiccontext,thisgrowthof3%q/qwasanoutperformanceofexpectations.Certainly,thereisanoticeabledeclineintake-upcomparedtotheendof2021andthestartof2022.Indeed,despitetheuncertaintyinthemarket,take-upremainsinlinewiththequarterlyaverageoverthelastfiveyears.

Thecombinationofthisresilienceandarecord-breakingH1sawyear-endtake-uptotal37.5msqmin2022,atotalsecond

onlyto2021’sserieshighof40.2msqm.Thisequatestoafallofjust6%year-on-yearin2022.Inannualterms,declinesintake-uphavebeenonlymildandrelativelyevenacrosstheboardwiththeexceptionoflargeyear-on-yearincreasesinsmallermarketslikeDublin,MadridandRomania.Thishasleftthecompositionoftake-upbythemarketmoreorlessinlinewith2021.

Diggingfurtherintoindividualmarkets,mostlocationsoutperformedtheirfive-yearaverages,evenastheypostedsignificantdeclinescomparedtoQ42021’s

recordquarter.Portugal(+94%),Romania

(+62%)andSpain(+57%)sawthestrongest

resultsrelativetotheirfive-yearaverage.

France(-4%)wastheonlymarkettoposta

negativeresultonthismetric.

Despitethis,manymarketsnowlook

severelyadverselyimpactedbyeconomic

headwindsinthecontextoftheiryear-on-

yeargrowth,withPoland(-37%)andthe

UK(-47%)allseeingsharpyear-on-year

declinesrelativetoQ4.Thatsaiditmustbe

keptinmindthatoveralltake-upin2022

was18%higherthanthefiveyearaverage.

Europeantake-upstabilisesdespiteheadwinds

12

10

8

6

4

2

0

UK

Spain

Romania

Portugal

Poland

Netherlands

Ireland

Hungary

Germany

France

CzechRepublic

Denmark

Belgium

Annualtake-upremainswellaheadofthefive-yearaverage

120%

100%

80%

60%

40%

20%

0%

-20%

-40%

-60%

YoY-

Q4YoY-20225-yearaverage

Source:SavillsResearch

/research5

EuropeanLogisticsOutlook

Recordlowsinvacancycontinuetosupportrentalgrowth

Strongtake-upin2022continuedtoputdownwardpressureonvacancyrateslastyear.Theoverallvacancyratefellfrom3.6%attheendof2021to3.1%,itslowestpointintheseries.

Inthelastfourquarters,vacancyrateshavetightenedto6.3%inMadrid(-300bps),4.0%inRomania(-250bps),and2.3%inNorwayinthefinalquarterof2022.InPrague,thevacancyratehasremainedbelow1%forthelastthreeconsecutivequarters,whichanecdotallytranslatestoalmostnoavailabilityofsuitablestockforoccupiers.Wearenowseeingvacancyratesbegintoriseinsomemarkets,althoughcruciallyfromrecordlows.Thevacancyrateroseto3.9%intheUK(+100bps),and3.8%inBudapest(+60bps),andreboundedfromaserieslowinDublinto1.6%(+80bps).Vacancyrates

maycontinuetotrendupwardsin2023asthee-commercefirmsthatpropelledtake-uptorecordheightsadapttoloweronlinesalesvolumesand,insomecases,reducetheirfootprint.

Competitionforthislimitedstockhasintensifiedamongoccupiersasthevacancyratehasdeclinedinrecentyears.Thisgavelandlordstheopportunitytocommandhigherrentsfortheirproperties,particularlyformodernstockwhichhasbeenincriticallyshortsupply.AcrossEurope,primerentsgrewby11%in2022.AnnualgrowthinprimerentswashighestinPrague(36%)and?le-de-France(32%)andUpperSilesia(+22%).Rentalgrowthslowedto2.0%y/yinWarsaw,Madrid,andStockholmandwasflatinViennaandBudapest.

Aswehavepreviouslynoted,slowing

leasingactivitywillprobablybeoffset

bythehistoricallylowlevelsofavailable

space,whicharelikelytocontinuetodrive

rentalgrowthintheshortterm.With

vacancyratesatsuchlowlevelsatthe

startoftheslowdownandnosignsofan

oversupplyintheconstructionpipeline,

thereisroomforanincreaseinoccupiers

handingbackspaceduetoastronger-

than-forecastdownturnwithoutleading

toasharpcorrectioninrents.

AsourresearchintheUKshows,

transportcostsaccountforasignificantly

highershareoflogisticsoccupiers'

operatingcoststhanrent.Thissuggests

thatwell-locatedprimestockwillremain

inhighdemand,particularlyamong

occupiersfacingrisingfuelcosts,seeking

toincreasefuelefficienciesbyreducing

averagejourneydistance.

Europeanvacancyratesfalltorecordlows

14%

12%

10%

8%

6%

4%

2%

0%

2017CzechRepublic

Barcelona

Denmark

Romania

2018

Dublin

Oslo

2019

Netherlands

Helsinki

2020

Madrid

Budapest

2021

Poland

Euroaverage

2022

UnitedKingdom

Chronicshortageofstockcontinuestostokerentalgrowth

AnnualGrowth-2021AnnualGrowth-2022

60%

50%

40%

30%

20%

10%

0%

Source:Savills

/research6

Billions

100%

50%

0%

-50%

-100%

EuropeanLogisticsOutlook

Investmentvolumesdropfromrecordhighs

Thelogisticssectorremainedappealingtoinvestorsin2022,withinvestmentvolumesintologisticsassetsreaching€54.5bn,afallof18%year-on-year.Similarlytotheoccupationalmarket,itmustbenotedthat2021wasarecord-breakingyear,andthereforeadeclineininvestmentvolumewasalwayslikely,evenwithouttheeconomicvolatilitywehaveseenoverthelast12months.

Althoughtherecordof2021ishardtosurpass,theindustrialsectorcontinuedtoattractcapitalin2022,withthetotalindustrialvolumesitting24%abovethe5-yearaverage.Thisappetiteforlogisticsisreflectedbylogistics'increasingshareoftotalinvestment.Ourdatashowsthatin2017,theEuropeanlogisticsinvestment

volumewasapproximately13%oftotalEuropeaninvestmentvolumes,andthisincreasedtoapproximately19%in2022.

However,2022’sfinalfigureobscuresasignificantslowdownoftheindustrialinvestmentvolumesacrossEuropeinthesecondhalfoftheyear,andspecificallyinthelastquarter.Thesectorbenefitedfromstrongmomentuminthefirsthalfoftheyear,withtotalinvestmentvolumesrisingby59%comparedtothefive-yearaverage.

Momentumslowedinthesecondhalfoftheyearasrisinginterestratesandtheensuingincreaseinfinancingcostsledtoinvestorsbecomingmoreskittishinthesecondhalfoftheyear.Ourdatashowsthat62%ofthetotalinvestmentvolumein2022isrelatedtodealsthatclosedinthe

firsthalfoftheyearand38%inthesecond

halfoftheyear.Incontrast,atypicalH2

accountedfor57%ofannualinvestment

volumesinthelastfiveyears.

Acloserinvestigationshowsthatthe

totalindustrialinvestmentvolumeinthe

lastquarteroftheyeartotalled€8.6bn,

whichisflatquarter-on-quarter(-1%),but

representsafallof69%comparedtoQ4

2021anddownby42%onthe5-year(Q4)

average.WhileinvestmentinQ3typically

slowsforseasonalreasons,Q4accounted

for39%ofannualvolumesoverthelast

fiveyears.Fromthis,wecanseethat

investorsstartedtoputtheirfootonthe

brakeinQ3of2022andhitthebrakehard

byyear-end.

Europeaninvestmentvolumesfallfromrecordhighsbutremainelevated

€70

€60

€50

€40

€30

€20

€10

€0

201720182019202020212022

UK

Sweden

Spain

Romania

Portugal

Poland

Norway

Netherlands

Italy

Ireland

Hungary

Germany

France

Finland

Denmark

CzechRepublic

Belgium

Year-on-yearcomparisonsagainstarecordQ4andyearshowsharpdeclines

150%

YoY-Q4YoY-20225yearaverage

Source:Savills

/research7

.50%

7

EuropeanLogisticsOutlook

AlthoughthesedeclinesinvolumesinthelastquarteroftheyearwereseenacrossEurope,thecountrieswiththebiggestquarter-on-quarterdeclineswereIreland(-92%),France(-66%),Norway(-62%),andtheUK(-48%).Onlythreemarkets:Sweden(+79%),theNetherlands(+56%),andDenmark(+17%)sawindustrialinvestmentvolumesincreasequarter-on-quarter.EventhesemarketsaredownrelativetotherecordQ4totalin2021,year-on-yearcomparisonswithQ4showdeclinesof-59%,-23%,and-78%respectively.

Lookingatwhothebiggestbuyersandsellerswereinthelastquarteroftheyear,wesee,andperhapsunsurprisingly,thebiginvestors(GIC,Blackstone,andICG)thatgenerallyhavemoredrypowderavailabletopickupassetsagainstadiscountfurtherincreasingtheirmarketshareintheindustrialsector.Whilstonthesellerside,wesawamixtureofinvestorsanddevelopersdisposingofsomeoftheirassetstoensureliquidity.

Thegapinexpectationsbetweensellersandbuyersthatwewitnessedinthethirdquarterof2022widenedfurtherinQ4,resultinginasignificantdropin

dealsclosing.This,inturn,decreasedtheavailabilityoftransactionalevidence,makingithardertodiscernwherepricingwasatthecloseoftheyearandincreasingthedisparitybetweensellers’andbuyers’pricingexpectations.Whenfacedwitheconomicuncertaintyandanincreasinglyopaquemarket,investorstendtoshifttheircapitaltocoreassetsintheirdomesticmarkets,whichtheytypicallyhaveabetterunderstandingofandareperceivedtobemoreresilienttomarketfluctuations.Forsomeinvestorsthismayrepresentasafehavenuntilmarketconditionsbecomefavourableagainfornon-domesticandmorevalue-addoropportunisticinvestmentopportunities.

ThelimitedtransactionalevidencethatcametolightinQ42022showedthatprimeindustrialyieldsmovedoutfurther,withtheEuropeanaveragereaching4.69%inthelastquarterof2022,anincreaseof40bpscomparedtoQ32022andnearly70bpscomparedtoayearearlier.

The(core)WesternEuropeanmarketssawthegreatestupwardpressureonaverageprimeyields.WiththecoreWesternEuropeanprimeyieldsincreasingto4.11%andfortherestofWestern

Europeto4.43%whicharecomparedto

previousquarterupby36bpsand45bps

respectivelyandcomparedtosame

periodlastyearupby75bpsand82bps

respectively.TheprimeyieldsintheCEE

andSouthernEuroperegionsremained

relativelystableonlymovingoutby10bps

and9bpsto5.86%and5.45%respectively

comparedtolastquarterand11bpsand

40bpsyearoveryear.

Zoominginfurther,themarketswith

thelargestyieldmovementsquarter-

on-quarterwereLondon(+75bps),the

DutchmarketsofAmsterdam,Rotterdam,

SchipholandVenloall+50bps,followed

closelybytheGermanmarketsofBerlin,

Cologne,DusseldorfandHamburgall

+40bps.Therewerenomarketsthat

showedyieldsmovinginwards,andwe

onlyrecordedyieldsstabilizinginWarsaw

(5.20%),MadridandBarcelona(4.75%)

andBucharest(7.50%).

Onanannualbasis,themovementin

yieldsismuchmoresignificant,withthe

largestincreasesoccurringinLondon

(+175bps),Venlo(+110bps),Amsterdam,

Rotterdam,Schiphol,Prague(all

+100bps),followedbyWarsaw(+95bps)

andBerlin,Cologne,Dusseldorf,Hamburg

andMunich(all+80bps).

Europeanlogisticsyieldsarerising

9.00%

8.00%

7.00%

6.00%

5.00%

4.00%

3.00%

2.00%

1.00%

0.00%

5.00%

5.00%

Q42021

Q42022

5.00%

4.10%

4.00%

3.90%

3.90%

3.90%

3.90%

3.70%

4.60%

4.50%

4.50%

4.20%

4.50%

4.50%

4.50%

4.70%

4.47%

4.35%

4.35%

3.70%

4.25%

4.75%

Source:SavillsResearch

/research8

USD(billion)

SectorRevenue($Bn)

EuropeanLogisticsOutlook

Tailwindsmaybereturning

ThedeclineininvestmentinthelatterhalfoftheyearislikelytocontinueintoQ1asbuyersandsellersstruggletofindcommongroundintermsofpricing.Anecdotally,ouragentshaveseensomeactivityfromnewentrantstothemarketwhoarewillingtopaysharperyieldsthanincumbentplayersinthemarket.Certainly,sentimentamonginvestorshasimprovedinthefirstmonthsof2023,butitremainstobeseenwhenbiggerplayerswillstarttotaketheplunge.

Therearepromisingsigns,however.Investorswerewaitingtodeployinexcessof$750billionindrypowdergloballyattheendof2022.Thisisanincreaseof74%comparedto2019,anditislikelythatanot-insubstantialshareofthiswillflowinto

Europeanrealestateassets.Indeed,asurveybytheOfficialMonetaryandFinancialInstitutionsForumGPPfoundthat89%ofrespondentsareplanningtoincreaseormaintaintheirallocationstowardsrealestateinthenext12-24months,thehighestshareofanyassetclass.Giventheindustrialsector’sincreasingshareoftotalinvestmentvolumesinrecentyears,wewouldexpecttoseeinvestorscontinuetobuyintothelogisticsgrowthstory.Thisisbecausetheoccupationalmarketcontinuestobenefitfromtailwinds,botholdandnew.

Theoccupationalmarket’sgrowthstoryhasbeencharacterisedbythepandemiceraboomine-commerce,andwhilethistrendhasweakenedinthelastyear,westillbelieve

thate-commercegrowthisaninevitable

progressionduetodemographic

trends,albeitataslowerratethanduringthepandemic.Statistaestimatesthatanadditional13.2mshopperswillstartusinge-commerceinGermany,theUK,France,Italy,andSpainby2025,havinggrownby47msince2017.Onedriverofthisisthatasyounger,moretech-savvygenerationsenterthelabourforceandgeneratetheirowndisposableincomes,theirmediumofchoicewill,onaverage,tendmoretowardsonlineshoppingthanpreviousgenerations.Overthenextfiveyears,forecastsalsosuggeststronggrowthinonlinesalesinthefoodsector.Thiswilllikelybeaboonforlogisticsdemandattheexpenseoftraditionalretail.

Globalfundsraisede-Commerceforecastsshowcontinuedgrowth

AmericasEMEAAPAC

900

800

700

600

500

400

300

200

100

0

2013

201420152016201720182019202020212022

Beauty,Health,Personal&Household

Electronics

Food

Media

Total(RHS)

Beverages

Fashion

Furniture

Toys,Hobby&DIY

500

400

300

200

100

0

1400

1200

1000

800

600

400

200

0

TotalRevenue($Bn)

20172018201920202021202220232024202520262027

Source:SavillsResearchusingRealfin

Source:Statista

/research9

ShareofGDP

1996-Q3

1997-Q3

1998-Q3

1999-Q3

2000-Q3

2001-Q3

2002-Q3

2003-Q3

2004-Q3

2005-Q3

2006-Q3

2007-Q3

2008-Q3

2009-Q3

2010-Q3

2011-Q3

2012-Q3

2013-Q3

2014-Q3

2015-Q3

2016-Q3

2017-Q3

2018-Q3

2019-Q3

2020-Q3

2021-Q3

2022-Q3

€(Millions)

2002-10

2003-10

2004-10

2005-10

2006-10

2007-10

2008-10

2009-10

2010-10

2011-10

2012-10

2013-10

2014-10

2015-10

2016-10

2017-10

2018-10

2019-10

2020-10

2021-10

2022-10

Anothertrendthatwilldriveoccupierdemandistheshiftawayfromlong,complicatedglobalsupplychainsandanincreaseinon-shoringandnear-shoring.Inthenearterm,supplychaindisruptionhasseenmanyoccupiersexpandtheirfootprinttoaccommodateashiftfromjust-in-timetojust-in-caseinventorystrategies,withourownresearchpointingtoincreasinginventorysizesasamajorchallengeamongstoccupiersin2022.Inthelongerterm,wewouldexpecttoseegreatertake-upinthemanufacturingandautomotivesectors.TheUKshowsonepotentialexampleofthistrend,withmanufacturing

accountingforitshighest-evershareoftake-uplastyear.

Wewouldalreadynoteasignificantincreaseintheimportofintermediategoods,whichwillundergoadditionalmanufacturingbeforereachingconsumersinEurope.Monthlyimportsofintermediategoodsincreasedby17%y/yinOctober2022andby40%comparedtothesameperiodin2019.Indeed,totalimportsofintermediategoodsinthefirst10monthsof2022were62%higherthantheten-yearaverage.Thatsaid,bothinventoryaccumulationandintermediategoodsimportsarehighlypro-

cyclical,sothere’spotentialforsignificantamountsofnoiseinthisdata.

Finally,globalshortagesinsemiconductorshaveledtoconcernsaboutsupplychainsecurity.ThisindustryisheavilyconcentratedinTaiwan,whichissubjecttoincreasinggeopoliticalrisk.OnshoringinthisindustrymayprovetobeaboontoEurope’sindustrialandlogisticssector,whichwoulddriveanincreaseindemandtoaccommodatenotonlythisindustrybutalsothesupportservicesthatwillspringuparoundthesebusinessesasaresult.

Inventoriesaregrowingatarecordrate

2.50%

2.00%

1.50%

1.00%

0.50%

0.00%

-0.50%

-1.00%

Importsofintermediategoodscouldsuggestanuptickinonshoring

Source:Eurostat

250,000

200,000

150,000

100,000

50,000

0

Source:Eurostat

Summary

Fivekeyconsiderations

1.Europe'seconomyisholdingupbetterthanexpected:

EuropeanGDPresultshave,inaggregate,outperformedpreviousGDPforecasts.ThishasledtoanumberofupwardrevisionstoGDPforecastsinrecentmonths.Whileretailsalesvolumeshavefalleninrecentmonths,consumersentimenthashelduprelativelywell,sup-portedbyhighconfidenceinemploymentprospects.

2.Annualcomparisonsintheoccupationalandinvestmentmarketaremisleading:

AdeclineinleasingandinvestmentvolumeswasalwayslikelyafterthenewrecordssetinQ42021and2021asawhole.Indeed,take-upinQ42022actuallyrosequarter-on-quarter,outperformingexpectations.Notably,bothtake-upandinvestmentvolumeswerewellaheadofthefive-yearaveragein2022.

3.Pricingexpectationdisparitiescontinuetohamperdeals:

Whileyieldshaveriseninthemajority