Interview: Blackstone keeps laser focus on European logistics

Logistics has been a sector darling for Blackstone, the largest owner of commercial real estate globally, ever since it launched Logicor in 2012. Over the past decade, the asset management giant has built up a massive portfolio across a number of platforms focused on different types of logistics distribution facilities.

In the past 12 months alone, Blackstone bought over €4 bn of logistics real estate in Europe across 100 individual transactions. Peter Krause, who has been responsible for Blackstone’s European logistics investments for the past eight years, talks to PropertyEU about his views on the sector and why this real estate segment will continue to make a compelling case for investment going forward.

PEU: What makes logistics so attractive compared to other sectors?
Krause: We are thematic investors focused on sectors with strong macro tailwinds where demand meaningfully exceeds new supply. For us, in commercial real estate, this includes data centres, living, hospitality and logistics. In particular, we have been active investors in logistics for the past decade and believe the asset class continues to be attractive, which is why in the last 12 months, we have committed to over 100 transactions in the sector alone. The momentum behind the e-commerce revolution that has underpinned its growth continues, including in Europe which currently lags behind the US in terms of online penetration. For example, Amazon in the US has 10 times the amount of warehouse space per person than it does in Europe.

Blackstone was an early mover in the logistics space globally, first in the US, and, over the past 12 years, in Europe, where we have built two separate logistics platforms. Logicor, one of the leading owners and managers of big-box European warehouses, was launched in 2012 and, seven years later, we launched Mileway, which today is the largest owner of last mile logistics in Europe, with a portfolio of 14 million sqm.

PEU: Blackstone has a number of platforms specialised in logistics. What are the main differences?
Krause: We are invested across the entire spectrum of this asset class from traditional regional warehouses/big box operating distribution centres to infill last mile properties and of course the more flexible industrial SME (small and medium-sized enterprises) spaces.

We have three main platforms in Europe to date - Logicor, Mileway and Indurent - each highly complementary to each other but operating within their own branch of the logistics space, benefiting from different synergies, be it tenant relationships or demand.

Logicor, which provides extensive coverage across all major European corridors, generally focuses on larger assets, including for bulk storage and the initial distribution of goods, ensuring that products are efficiently moved long distances from initial manufacturers to distribution centres.

Mileway is our last mile distribution specialist platform where goods are quickly delivered from the regional distribution centres to end customers across major European cities. And Indurent primarily focuses on logistics across the UK.

These platforms, while separate, all tap into one big underlying trend which is the continued growth we see in global demand trends.

PEU: Blackstone continues to be very active in the European logistics sector including the most recent acquisition of an 80% stake in the Burstone European portfolio in a deal valued at €1 bn. Can you comment on the rationale for this deal?
Krause: We were excited to enter into a partnership with Burstone this year, acquiring a controlling stake in their billion-euro logistics portfolio. We were particularly drawn to the portfolio because it correlates to where we see ecommerce further driving tenant demand, especially considering that nearly 90% sits within last mile locations.

The partnership gives us access to a large portfolio of assets concentrated in major Western European countries like Germany, the Netherlands and France. This, combined with our longstanding relationship with the Burstone team, made this a compelling opportunity. I have known Paul Roger (managing director of Burstone) for a decade. He is a very clever operator with great tenant relationships, so we are very excited that Burstone will continue to operate the portfolio under his leadership.

PEU: Geographically, where is Blackstone focusing its attention?
Krause: We are bullish on good locations with population density and excellent transport links and perhaps more cautious on secondary locations where it is easier to build. The UK, Western Europe and the Nordics remain attractive given vacancies across these markets are in the mid 4%, and it remains difficult to build new space. All in all, we see quite resilient demand drivers as well as high economic and industrial activity, benefiting from nearshoring and onshoring trends. We also focus on dense population areas because a major trend we are seeing is the difficulty our customers face in hiring, and population density allows them to staff the warehouses.

PEU: Do you also invest in new developments and assets?
Krause: We embark on developments selectively in markets where it is difficult to build so there is less risk of oversupply. For example, in the UK you have a fairly strict planning regime as to where and when one can develop due to the green belt. Seeing that trend, we launched Indurent which is a leading operator of industrial spaces and a developer of Grade A mid-box warehouses across the UK.

PEU: Can you please provide more detail on the launch of the Indurent platform?
Krause: The launch of Indurent brought together two unique platforms, one being Industrials REIT, a specialist multi-let industrial property platform that we privatised in 2023 and which focussed on SME/industrial space. The other was St. Mowden Logistics, a logistics developer and manager which had a unique mix of development expertise and a tradition of land procurement. Combined, the company benefits from a market leading technology platform and a portfolio of ~30 million ft2 alongside a large development pipeline, really allowing them to offer a range of properties from light industrial units to Grade A big-box developments.

Indurent has already grown into one of the UK’s largest owners of logistics properties today with a large footprint across all major cities and an exceptional senior leadership team that brings a significant amount of sector expertise and specialist knowledge to the combined platform. We strongly believe in the future of the company and the extensive land bank that it has will allow us, in time, to double the size of the portfolio.

PEU: How has the market changed over the past decade and what new trends are we seeing in the market?
Krause: The warehouse landscape we see today would have been unimaginable 10 years ago. There has been an ongoing transition to ever increasing sizes and volumes of last mile warehouses near city centres and national warehouses that sit in the centre of the country, supported by the global boom in ecommerce.

For the past couple of years, we have witnessed the strong performance of last mile facilities, which has been fuelled by an increased focus on nearshoring and onshoring. Additionally, manufacturing as a percentage of take-up has increased dramatically while construction is down meaningfully by 30-50%, depending on the country. This has allowed European vacancy rates to generally stay quite tight despite the macroeconomic changes we have experienced recently. We have also continued to see strong market rental growth and we expect this to continue going forward.

On the investment side, we are seeing increasing transaction volumes. Improving macro-economic fundamentals are translating into better market sentiment and we are seeing investors returning to the market at scale, committing to ever larger transactions. At Blackstone, we will continue to look for opportunities that complement our existing portfolio and the platforms we operate, and have no doubt that we will continue to deploy capital at scale.