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Saturday, February 24, 2024

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Memento Mori

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2024: Challenges, changes, chances

Challenges, changes and chances – that is what 2024 will bring in the world economy and  in the warehouse sector, according to the head of a major fund building warehouses in Europe.

2024, the same as the last four years(!), will be full of challenges and uncertainties. For the logistics real estate sector, it won’t be bad, however. There are changes, which need to be constantly analyzed in order to match current tactics with long-term strategies.

The challenges, as well as the chances, which the new year will bring can be divided into global and specific ones for our sector. Macro factors, which will have a significant impact on the world in 2024, are:

Economic growth will be slower, but positive – according to OECD Economic Outlook, in 2024 GDP will rise by 2.7% globally, 0.9% in the Eurozone and 2.6% in Poland. Asia will be responsible for the majority of the global GDP growth. Higher growth is expected in 2025. From a logistics point of view, growth drives consumption and vice versa.

Inflation – The OECD expects that inflation of goods and services in most countries will fall. In OECD countries, inflation in 2024 is expected to be 5.2%, in the Eurozone 2.3% and 4.7% in Poland. This is good news, however, compared to levels before the pandemic and the war, we are still far from target inflation, set by the central banks. Lower inflation will result, in time, in an increase in available funds for additional expenses, which also translates into additional storage needs.

Interest rates \ unemployment – as inflation declines globally, interest rates are expected to fall in most countries. Of course, these will not be levels close to or even below zero, as has been the case recently, but the declines will have a significant impact on financing costs and thus the growth and profitability of investments. Unemployment will also remain at record low levels. Lower rates mean cheaper project financing, which in turn improves profitability for investors.

Politics \ geopolitics – there will be a series of important elections in 2024, including elections in the US (presidential, house of representatives and senate), parliamentary elections in India and presidential elections in Taiwan, as well as EU parliamentary elections. These elections will have a significant influence on the geopolitical situation (either deterioration or improvement) and ongoing armed conflicts in the world (Ukraine, Israel) or tensions between global powers.

ESG – COP28, which was recently held in Dubai, resulted in the signing of a historic agreement on moving away from fossil fuels, achieving zero emissions by 2050, as well as tripling the share of renewable energy in the energy mix and doubling energy efficiency by 2030. This is an important element, but it will require large investments, which in the case of slower growth will require good strategizing.

From the perspective of our industry (real estate focused on logistics), the situation looks positive due to several elements:

Nearshoring – originated during covid, strengthened by war and geopolitics, nearshoring (moving production closer to markets) creates demand for new logistics space. The market of semiconductors in Europe alone will require over 10 mln sqm of new warehouses to the end of this decade.

Supply chain – broken up by Covid and then even more damaged by war, global supply chains mean an enforced increase in stocking so that customers can continue to buy and have access to products “just in time.” Currently, only 6% of companies have complete visibility of their supply chains, and almost 70% do not have it fully. Here it is important to use logistics digitization to obtain real-time data, digital documents and tracking, which translates into efficiency.

E-commerce – dynamic at the time of Covid, online sales growth is an unstoppable trend. This sector requires at least three times the warehouse space than ‘traditional’ businesses, due to the number of SKU. Currently, e-commerce is about 19% of global retail sales and by 2027 is expected to be even 40%, which will further increase the demand for warehouses.

Green logistics – is impacting as little as possible on the environment. Year-to-year, firms (tenants and property owners) gain increasing environmental awareness and strive to decrease their carbon footprint at every stage in their supply chains. Our warehouses as well as our fund are in line with ESG principles, not only by name but also in practice, which is reflected by top certifications.

Concluding, 2024 will be full of challenges and difficulties, however the perspective for growth, lower inflation and interest rates gives hope for revival. From the investment perspective, in the face of new challenges, there are three key factors: diversification of assets, patience and human immunity.

Szymon Ostrowski
Szymon Ostrowski
Managing Director, NEWPORT LOGISTICS FUND
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