Headwinds turn into tailwinds for European logistics market

The European logistics market is definitely turning, according to Philip Dunne, CEO and president of Prologis Europe.

‘We’ve had a couple of quarters of meaningful growth in demand, rents are turning up again and values are starting to recover. The headwinds have turned into tailwinds,’ Dunne told PropertyEU.

Last week, Prologis announced that rents at its European operations would grow 20% by 2016. The UK is leading the recovery, Dunne said. ‘Rents there have recovered incredibly quickly. Demand is improving and rents are spiking.’ He added that he expected rents to grow by 4-5% on average this year.

Financially the company is also on a firmer footing after reporting a strong earnings upswing after losses the previous year. It has also been successful on the capital raising trail. In the past 12 months, the Denver-based industrial property specialist raised a record $4.1 bn (€3 bn) worldwide, including nearly €1 bn in Europe. ‘A year ago, the world still faced limited liquidity. Now there’s plenty of liquidity but not enough opportunity,’ Dunne commented.

A significant amount of private equity has been channelled into the logistics sector in the past 12-18 months with the likes of Canadian investment giant Brookfield snapping up Gazeley, and TPG and Ivanhoe Cambridge joining forces to buy P3. In the coming year, Dunne expects to see the source of capital broaden. ‘There will be less US capital, and more from Asia and the Middle East,’ he predicted.

Part of the funds raised for Europe are earmarked for acquisitions of third-party assets and stabilised projects from the company’s own pipeline for its open-ended funds. But a fair share of the spoils will be used to fuel the company’s development pipeline, Dunne said. The Amsterdam-based company already launched a number of new developments in 2013, including four speculative projects.

Earlier last week, Prologis announced it has signed two build-to-suit agreements totalling 45,800 m2 in the UK. The agreements include a logistics facility at Prologis Park Littlebrook in Dartford and another at Prologis Park Ryton in the West Midlands. The latter is a speculative project, Dunne said. ‘The UK is really coming back strong. Rents are leading the charge of recovery in core markets. The wave of supply of the previous cycle has been absorbed and development is starting to make plenty of sense.’

Elsewhere in Europe, Prologis is also working on a speculative development in Prague while projects are also on the agenda in the Benelux, Germany and Poland. ‘We’re definitely seeing built-to-spec projects in the UK, but also Germany as well as pockets in CEE, like Prague, Bratislava and Wroclaw. The markets there are very tight. Southern Europe is lagging a little bit, but there are some great projects there too. The situation is not uniform across Europe.’ In France the focus is primarily on Paris and to a lesser extent Lyon where oversupply is also subsiding. ‘Le Havre is also showing signs of strong growth.’