Prologis sees room for speculative logistics development

Prologis' European boss Philip Dunne believes there may be room for speculative development of logistics real estate in some markets over the next two years.

However, the focus will remain on build-to-suit projects, he added..

PEU: Prime logistics assets are in high demand among investors. What is the situation on the supply side?

DUNNE: Preliminary estimates of development starts across the European market stand at 500,000 m2 in the first quarter of 2013. This is the lowest volume since the second quarter of 2010. Prologis did not undertake any development starts in the first quarter 2013, although in April, we signed an agreement for an 18,200 m2 build to suit facility for Tradis at Wroclaw V in Poland.

Looking at the longer term trend, supply has remained very tight and absorption has remained consistently strong relative to the wider economic environment. Many markets are showing increasing demand for modern space of 20,000 m2 and above. This is driving rental growth and we are seeing a strong pipeline of enquiries and activity.

PEU: Can you put this into numbers?

DUNNE: We are confident that this will translate into further development opportunities, as demonstrated by big deals such as the 100,000 m2 BTS for Sainsbury’s in the UK in Q2 2012, and the 18,300 m2 BTS for Tradis in Poland in Q1 2013.

While new supply remains focused on BTS deals, which formed 90-100% of development in 2011 and 2012, we see opportunities for increased speculative development in constrained markets over the next 12-24 months.

PEU: How important is e-commerce for the logistics property sector?

DUNNE: E-commerce market penetration is just 6.5% and observers believe this could rise to above 25%, especially with the proliferation of mobile technology and internet adoption in emerging markets such as Central and Eastern Europe.

Across Europe, e-commerce sales shot up from $146 bn in 2007 to $171 bn in 2012, when competitive build to suit activity dedicated to e-commerce was 20% in Europe, 40% in the US and 20% in Japan. Looking at e-commerce market penetration and spending per capita: UK is leading while Germany, France, Sweden and the Netherlands are mature but relatively smaller markets.

This is the second part of a recent interview with Philip Dunne, president of Europe at Prologis. The first part of the interview is available here.