Ecommerce giant Amazon has helped propel Goodman’s European business, making it the top developer in Europe for the fourth year running.
Ecommerce giant Amazon has helped propel Goodman’s European business, making it the top developer in Europe for the fourth year running.
Earlier this year, PropertyEU announced that Goodman Group has taken the lead for the fourth year running in our annual Top Developers ranking. The Sydney-listed company won the top spot for the overall ranking, ahead of both office and retail developers as well as its own logistics peers based on projects completed between 2012-2014. The strong performance is partly due to Goodman’s success in reeling in one of the biggest fish in the ecommerce sector: US-based Amazon.
Over the past eight years, Goodman has developed just over 1 million m2 for Amazon across 13 different projects across Europe including Germany, France and Poland. As a result, Goodman has recorded a steady pipeline of new developments coming to the market of just under 2 million m2, rising to 2.1 million m2 in the three-year period to end-2014.
In late 2014, Goodman completed its 13th project for Amazon in Wroclaw, which marked Amazon’s first centre in Poland. The 123,000 m2 facility is the largest in Poland and is also one of the biggest free-standing logistics centres in CEE. At present, the Australian company has no new developments for Amazon in the pipeline, but Goodman’s continental European managing director Philippe van der Beken expects a sizeable and consistent volume of development over the next two to three years of around 1.9-2 million m2. ‘We have a broad customer base and solid platform across Continental Europe. Assuming current market dynamics remain, I expect we will be able to generate the same volume over the next two to three years.’
Appetite for big sheds
Despite its strong expansion so far in Europe, Amazon’s appetite for big sheds has by no means waned. US developer Panattoni is currently developing a 130,000 m2 facility for the ecommerce giant in Prague and others are believed to be in the pipeline. But it was Goodman that pioneered the creation of the XXL sheds that are now becoming the norm in the industry.
Van der Beken claims a key success factor has been Goodman’s customer-centred approach. ‘We find it important to be open and listen to our customers on what makes sense for them. From there, we think in terms of industry needs, building typologies and functions and how they fit in a flexible supply chain. Ten years ago, when Amazon was considering an 80,000 m2 facility in Leipzig, there were not many actors willing to take that bet. We looked at the location and asked ourselves: why does it make sense for Amazon? After that DHL came along and we have now developed over 300,000 m2 in Leipzig. That is how we work.’
Goodman’s strategy is less land bank based than some its European competitors, Van der Beken added. ‘The route we have taken is less of a “push our land bank” strategy. We replenish our land bank when we need to, typically on land-constrained locations and in countries where planning processes are difficult and long and where they may present a risk for our customer, for example in some Southern European and CEE markets. We do some land banking and purchase or take options on land based on various circumstances such as permitting and overall land availability, and market dynamics like price and expected demand. We know which locations may work best, but that only applies to a fraction of the market.’
Goodman has taken a similar route in the region north of Paris between Lille and the French capital, Van der Beken said. ‘Our customers have different needs and require different types of buildings in different markets. We like to have an open mind in the market so we can think with our customers. We want to offer the best value for money to our customers in the long term. Their success is our success, so we look at recurring activities and relationships that we can build over the years.’
Partnership approach
There are many aspects to consider when selecting a location, Van der Beken pointed out. ‘We do not have a standard view, it depends on the function in the chain. There are so many issues like traffic congestion, labour availability and costs, commuter infrastructure and transport costs, all these factors may be different for each location. It’s too complex to have a simple answer.’ Van der Beken declined to say how big Goodman’s land bank is in Europe, but said the size of the company’s land bank is not an accurate measure of the business. ‘We like to understand the entire chain and what is sustainable in the long-term. You can’t do that with a standardised format and top-down approach. We prefer a partnership approach with our customers and listening to their specific needs. Logistics providers, for example, work with customers in a variety of different sectors with specific logistics needs. Thus the location and type of building will vary.’
Goodman’s European successes with Amazon and other customers have led to an increased level of repeat customers and business, also at group level, Van der Beken said. ‘Some of our European-based customers are also important customers worldwide. This repeat business in certain sectors such as the 3PL industry, e-commerce, retail and automotive means we have built up significant expertise in those segments. Our customers value that expertise. It means we understand their business needs, which in turn facilitates the collaboration and development process. It comes down to quality in everything we do. Reliability, credibility and value for money are key to our success.’
Van der Beken claims Goodman’s approach to property management is to work with its customers closely throughout the entire life cycle. ‘We have a team of financial, technical and operational property experts in-house. This allows us to interact with our customer on different levels. On the one hand, our property managers look after the quality of the property on a day-to-day basis, visiting their customer at least every six weeks and in some cases every couple of weeks. Our technical and financial experts, on the other hand, take a long-term view on the property and the customer’s evolving needs. Having expertise across all facets of property management in-house helps us to keep abreast of our customers’ needs and means that we can directly address those needs. This creates an open dialogue with our customers and helps us to keep track of the quality of buildings. This is an important part of maintaining our assets, our relationships with customers and the income profile of the assets. We manage our assets in-house, both on a strategic and operational level, which benefits both our customers and capital partners.’
Ecommerce remains an important engine
While Amazon has played a key role in Goodman’s stunning European expansion in the past five years, Van der Beken claims the US company is not critical to the further growth of the European operations. Ecommerce will, however, remain an important engine, he conceded. ‘We have built up a strong expertise and reputation in that sector. Ecommerce accounts for a more important share in our pipeline and will remain an important driver in our portfolio. But we also work for other ecommerce companies like Zalando, Home24, Cdiscount and Ebay. Additionally, many retail companies are now developing an omni-channel approach. So we are also seeing an increase in demand from traditional retailers entering the e-retail space.’
Altogether, ecommerce accounts for roughly 12% of Goodman’s €2.4 bn European Logistics Fund (GELF).
Another key driver of Goodman’s European operations is the German automotive industry, Van der Beken said, pointing to car manufacturers of the likes of BMW, Daimler and Volkswagen. In total, automotive represents just over 7% of GELF’s portfolio in terms of income. With production totalling approximately 6 million units a year, car manufacturing levels in Germany now exceed pre-crisis levels, he pointed out. ‘This shows the strength of the industry. We have done a lot of work for the automotive industry in Germany and across Europe and our global platform. Car suppliers are also important customers.’
By far the biggest contributor to GELF’s income base is transport and 3PL (third-party logistics) which accounts for 58% of GELF’s income stream. The outsourcing business and 3PL as a whole are showing 2.5% growth across Europe, double the continent’s GDP growth forecast, Van der Beken noted. ‘That remains a key theme alongside consolidation, globalisation and moving up the value chain. We are benefiting from that. These trends bring about more changes and a higher level of requirements and specifications to obtain higher levels of efficiency. These are key drivers on the development front.’
Take-up is increasing
In terms of the macro-economic environment, conditions are improving across the UK and Europe. Following a dip in 2012, take-up has increased steadily since then, Van der Beken said. ‘Vacancy levels have come down and demand has increased progressively. Vacancy levels in the major cities around Europe are now below 5% which we view as the friction level. We expect new supply to come in and restore the balance.’
With the exception of land-constrained locations, Van der Beken does not see strong rental growth feeding through on the continent in the coming year or so, but he does expect a positive evolution. ‘The markets are healthy and the theme is stability in real terms. The assumption is that supply is responsive to demand. In the longer run we expect the scarcity factor to become more prominent in line with a more restrictive stance on new greenfield developments.’
With vacancy levels low in most major cities in Europe, it is now hard to find a decent building for a 20,000 m2 space, he continued. ‘That is true of most western European countries, but also Poland, the Czech Republic and Hungary. There is some vacancy, but it is very fragmented.’ Van der Beken is particularly positive about Poland which has solid GDP growth forecasts. ‘We’ve seen some major improvements in the infrastructure of the country, the number of highways and express roads have increased fivefold in the past ten years.’ At the same time, spending power has also increased on the back of growth in GDP per capita, he added. ‘In 2003, Poland had 20% unemployment but five years later that percentage had more than halved and is now lower than the EU average. That has had a big impact on consumption and purchasing power and will be an important factor going forward.’
Across the industry, speculative development is starting to reappear in constrained markets in the UK, for example around London’s Heathrow Airport and select areas in continental Europe. Speculative development currently accounts for no more than 10% of Goodman’s total portfolio, Van der Beken said. ‘Over the last years, the majority of our developments have been pre-let. However, we are seeing strong commercial interest in our speculative projects and we expect that activity to increase further as a result of current strong demand and low vacancy rates.’
In Poland, Goodman is currently engaged in some spec developments in Warsaw, Wroclaw, Gdansk, Krakow and Gliwice. Poland turned in a very strong year in 2014, Van der Beken said, but added that Germany has on average been the largest contributor to earnings and accounts for the largest chunk of the portfolio. ‘We expect the volume will remain significant. We come from a lower base in Poland, but we have a good position with local customers and a strong team. We are a strong player on the Polish market. I suspect Germany, France and Poland will remain our most important markets on the continent over time.’
Germany accounts for 47% of Goodman’s European portfolio with France accounting for 18% and Poland 13%. The company has also done some spec development in Hamburg, he added. ‘We may do some overspec for our customers, but we need to be confident that the building is sustainable and that we can cater for changes if need be.’ Historically speculative development has not accounted for more than 10% of the total development pipeline, but the figure is not set in stone, Van der Beken noted. ‘Given the current demand levels and low vacancy rates, we expect to do more spec development.’
Other countries and regions
Goodman also has a presence in the Benelux, the Nordics, Spain, Italy, the Czech Republic, Slovakia and Hungary, but these are smaller markets, Van der Beken pointed out. ‘Our activity in these markets has been more volatile and ad hoc. These markets remain an important part of our European platform and we aim to do more work there. It is important to have a local capability to find land at good locations. They are difficult markets with a lower volume and a lower base where we have a smaller presence and teams.’
There are no plans for growth, he added. ‘Geographic expansion is not on our radar. We aim to do more and better work in the markets where we are already active. We don’t want to spread ourselves thin in other countries. Expanding our operations is not currently on the agenda.’
PERSONAL PROFILE
Philippe Van der Beken, Managing Director Continental Europe
Philippe van der Beken joined Goodman Group as Managing Director Continental Europe in October 2012. He is responsible for Goodman's activities across Continental Europe and plays an active role in driving Goodman’s development business, which has achieved consistent and steady growth over the years. Van der Beken previously worked at Goodman from 2005 to 2008 as Executive Corporate Transactions and Member of the Board of managers of the pan-European logistics real estate fund Goodman European Logistics Fund (GELF). Between 2008 and 2010 he pursued an entrepreneurial venture to develop real estate projects in Europe and Brazil. Van der Beken holds an MBA from the University of Chicago and a Master of Law from the University of Leuven.
COMPANY PROFILE
Sydney-listed Goodman is an integrated property group that owns, develops and manages logistics and business space across the Asia-Pacific region, Continental Europe, the UK, North America and Brazil. The company has total AUM of €21.4 bn with Europe currently accounting for around 8% of that figure. The company entered Europe in 2006 with acquisition of Belgian trader-developer Eurinpro. In that same year, it launched its Goodman European Logistics Fund and completed its first development for Amazon in Leipzig in Germany. Since its arrival in Europe, Goodman has made a number of acquisitions and has incorporated portfolios from Celogix, Kuhne & Nagel and ING Real Estate into its operations. In total, Goodman manages 5.5 million m2 in Europe with occupancy rates at 98%.