In the logistics world, supply chain disruption and elevated costs remain priorities for occupiers.

A recent joint survey by JLL and Reuters Events found that logistics occupiers are challenged most by the cost and shortage of energy alongside the disruptive impact of the war in Ukraine.

More than two-thirds of the 171 occupiers surveyed in Europe flagged the two factors, while 54.5% cited inflation as an issue. Higher operational costs, inventory planning, warehousing needs and sustainability are further key concerns for 2023.

Logistics real estate has largely kept its appeal thanks to its resilience during global and regional crises, be it the impact from the UK’s Brexit or COVID-19 pandemic.

However, an uncertain economic outlook, war in Ukraine and energy efficiency efforts are currently combining to test the theory that buoyant demand is here to stay – and that logistics space will be sustained by long-term structural drivers, such as e-commerce growth.

“Since the sector’s emergence in Continental Europe almost 25 years ago, structural trends have played an important role in bolstering demand for warehouse space in the absence of any meaningful economic growth,” says Lisa Graham, head of industrial & logistics research for EMEA at JLL. “However, with demand drivers evolving and changing over time, can they alone continue to sustain demand for logistics space even during current challenging economic times?”

Potentially disruptive consequences of sanctions and the war in Ukraine are driving occupiers’ decision making, according to JLL and Reuter Events’ The State of European Supply Chains 2023 report.

Logistics occupiers remain wary of disruption, despite recognising that the tide has turned on port bottlenecks impacting supply chain networks. According to the survey, 68% of respondents cite repercussions from the Russian war in Ukraine – notably energy shortages and exports from Ukraine – as being potentially the most prominent cause of disruption this year.

Adopting technology that monitors the supply chain to better mitigate and ease potential disruption, is also high up the agenda, the survey found.

The cost of inflation

Inflation for now remains a concern for logistics occupiers.

“In terms of inflation, respondents to our survey highlight its impact on both energy and transport costs, as well as on demand for goods as being principal concerns,” says Graham.

That said, after peaking at 10.6% last October, Eurozone inflation declined to 8.5% in January due to easing gas prices and will continue to decline throughout 2023, according to Oxford Economics.

“Along with what economists are predicting will be a short and shallow economic slowdown, moderating inflation could explain why the majority of survey respondents expect to have to pass only some costs onto customers this year.”

In anticipation of a slowdown in both business and household consumption this year – and while consumer confidence has been trending upwards since hitting its most recent trough last September – almost half of manufacturers and retailers surveyed expect to reduce inventories by as much as 20%. Additional interest rate hikes in the first half of this year, and a drop in household savings, would mean less liquidity for spending.

Managing stock

The survey found that there is a marked difference between occupier groups in how they use inventory management. Over half (57%) of logistics service providers plan to use buffer stock by increasing inventories up to 30% to mitigate impacts from a long-term heightened risk of disruption.

Meanwhile, only one third of manufacturers and retailers plan to use this strategy, instead, showing greater concern about adjusting inventory levels to an expected short-term decline in consumption.

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