In an interview with PropertyEU's Robin Marriott, Paul Graham, recently retired from DHL Group, speaks candidly about the European logistics industry to which he has devoted much of his 30-year career.
Ask those in European industrial and logistics circles to suggest the most influential people in the industry and it doesn’t take long for the name Paul Graham, formerly of DHL Group, to surface. Little wonder: up until a few weeks ago, Graham served as EMEA head of real estate at DHL, the world’s largest 3PL provider, where he led a team of 80 people ultimately responsible for around 3,000 facilities in 100-plus countries, with 500-plus annual lease events and an annual capex budget of over €1 bn.
Since retiring from DHL at the end of September, he has taken up positions with two specialist groups – as an adviser to property consultancy DTRE and as non-executive chairman of Gramercy Europe, the latter announced last month just days after senior management at the firm orchestrated a management buyout.
The prelude to him joining Gramercy revolved around informal conversations over several months with CEO Alistair Calvert and senior director Rory Buck, as he contemplated retirement from DHL. Graham became excited not only about Gramercy Europe’s newfound independence, as well as its track record of success, but also because of its strong occupier focus.
‘Having transacted with Gramercy whilst at DHL, I saw firsthand its strong occupier focus, which it wants to maintain and apply consistently across European markets,’ Graham explains. ‘Alistair and the team understand the importance of the occupier and that it is payment of rent that underpins every asset class. With my occupational experience, I hope I can bring some new insights and ideas to embrace.’
More collaborative
‘When I first joined the logistics sector, it was adversarial,’ Graham recalls. ‘Occupiers, developers and funds were playing the game of real estate but were acting as individuals rather than collaboratively. Move the clock forward 30 years, it is now a much more collaborative industry. While it still isn’t where it needs to be, it is far better. There still needs to be even greater focus on the occupier, whose business needs should be regarded as complementary to the investor market.’
He continues: ‘It was also a very parochial sector with many players concentrating on very specific regions and geographies. Now it is truly cross-border and indeed, global. Neither was it regarded as a very attractive investment sector 30 years ago. I can remember the first dedicated distribution centre we constructed in the late 1980s for M&S in North London, 250,000 sq ft close to the M25 motorway. It had to be funded on balance as there was no investor appetite. It just wasn’t regarded as an attractive asset, but now you can absolutely see why it is. The investors did not understand logistics and the logistics industry didn’t really sell itself.’
Future trends
He reels off a list of significant developments set to the shape the landscape, with both underground and multi-storey facilities as credible options to overcome land supply constraints. Artificial intelligence, e-commerce, urban logistics, robotics, automation, anticipatory logistics, improvements to operational efficiency and more environmentally friendly properties are other ‘headlines’ set to impact the industry. ‘Big data is the new oil for logistics,’ he adds. ‘By 2020, we will have 20 billion connected devices, yet why don’t we have as many connected buildings that speak to each other? At DHL there are buildings that speak to each other in order that trends such as consumption of utilities, maintenance etc can be monitored and compared.’
Graham also observed at DHL that power supply to sites was now becoming a real issue, resulting from the sheer size and scale of facilities as well as increased automation and use of electric vehicles.
Graham also sees some potential opportunities for the logistics sector as Brexit drags on. As international trade becomes more complex, supply chains will become more sophisticated. One consequence could be the need to hold more stock. ‘This will require more innovative solutions from 3PLs, including the potential need for more space,’ he adds. ‘This in turn will benefit other real estate players such as investors, developers and advisors. Inevitably, the larger international 3PLs will have an advantage.’
Turning his attention to the current market, Graham says occupier demand remains strong and rents continue to rise across Europe, which he witnessed at DHL. Speculative development, [something that Gramercy is looking at closely], is returning to the market, he adds. Meanwhile, urban logistics – intermediary parcel centres to service growing e-commerce - is a ‘great sector’ to be in, promises Graham; he points out that DHL increased its urban logistics capacity in Germany by more than 50% since 2012 just to cover e-commerce growth.
Addressing the feeling that acquisition prices might be getting too high in Europe, he says: ‘The market should closely monitor continued yield compression, which has translated into rising rents and a hike in land values, which is of concern. The market will remain in good shape so long as participants remember the lessons of 2008 and make prudent decisions.’
