LOGISTICS BRIEFING Europe remains underserved

The future of European logistics can be glimpsed across the Atlantic, as growth in ecommerce in Europe will mirror developments which have already occurred in North America, experts agreed at PropertyEU’s European Logistics Investment Briefing in London this week.

‘In Europe on average warehouse space per capita is one third of the level it is in North America,’ said Logan Smith, head of Logistics in the International Investment Group at BNP Real Estate. ‘The city of Chicago alone has a fraction of the population of Germany, but nine times the warehouse space. Europe remains underserved, so there is no doubt that the logistics sector will continue to grow.’

There are downsides to this rosy picture. One is fierce competition for scarce assets. ‘Money is not an issue, the biggest problem is finding the key product in the right location,’ said Ingo Spangenberg, Director, Industrial Investment at Savills.

Strong demand and a shortage of assets equals the need for development. ‘Development is an increasingly good way to access the market and you can get very good risk-adjusted returns,’ said Kristof Verstraeten, founder and managing director of Logistics Capital Partners. ‘I am particularly excited about France, Italy and Spain, countries which have been quiet for a long time but now see projects starting again. I believe we are at the take-off point and activity will pick up strongly as it did in the Netherlands after 2013.’

Another downside is that the sector is becoming more complicated, with new needs arising which bring higher costs. Fulfilment centres in operation for 24 hours a day for intensive ecommerce use will need insulation and ventilation, for example, so more capex is needed than in traditional warehousing. A building may only take up 25% of a space because the rest needs to be taken up by parking for delivery vehicles.

The cost of land and the need for space are leading to expensive multi-storey units being built, while another emerging trend is ‘beds and sheds’, hybrid buildings with residential upstairs and logistics downstairs which have already made their appearance in London and elsewhere in the UK.

Resi and logistics are increasingly interlinked. Warehouses in the middle of nowhere will not find staff to work in them, and consumer demands are forcing retailers to move closer to where people live.
From an ecommerce point of view, all the new houses that are being built to accommodate the increasing population in European cities are new delivery addresses which will need supply chains. ‘Both developers and investors are beginning to realise this,’ said Kevin Mofid, director of commercial research at Savills.

‘It can be difficult to determine the right rent and the right cover for these new and different types of assets,’ Verstraeten pointed out. ‘Yields have compressed massively so there is pressure on rents, but we are still seeing net positive capital value growth.’ The sector will take any problems in its stride, he said: ‘It is full steam ahead for logistics.’