Segro's Sleath: 2014 is a ‘great time to build’ EU logistics

Segro expects to allocate around one-third of investments from its SELP fund to new developments as strong demand makes it 'a great time to build', according to CEO David Sleath.

Speaking exclusively to PropertyEU, Sleath said: 'I think it’s a great time to be developing, but I still think that the best way forward is to grow through build-to-suit and pre-let rather than to undertake significant speculative development.’

Segro established the Segro European Logistics Partnership (SELP) in late 2013, a €1 bn joint venture with Canada’s PSP Investments.

While Sleath expects some speculative developments to pop up this year, he said, ‘there’s not really a huge advantage in building a warehouse on a speculative basis, because generally the construction times are short enough that we think it is better to wait for the occupier to come along and have a build-to-suit warehouse, because then they can have it tailored to their own requirements.’

Demand is being driven by a number of factors, he said, but in particular by significant changes to the supply chain brought about by ecommerce.

‘We’re seeing tremendous change in the whole distribution network of many retailers, in part caused by the need to drive cost efficiency and further improvements to their own distribution networks, but also because of the disruptive impact of the internet,’ he said.

‘It’s different delivering individual parcels and packages and small personalised loads to homes and offices than simply using a fleet of juggernauts to take products from a distribution centre to a shop.’

But, he noted, the broader benefits of ‘an improving economic environment generally across most parts of Europe,’ combined with ‘the shortage of new space in most markets’ are also having a positive effect on demand and bring great opportunities to invest.

‘The ownership of logistics on a pan-European basis is still incredibly fragmented,’ said Sleath, ‘and we think that more and more of the owners of sub-scale portfolios will realise that the next year or two is a potentially good time to be getting out and getting decent value for what they own, and that will give rise to more acquisition opportunities.’

The SELP JV acquired €472 mln worth of logistics assets across France, Germany and Poland within a few months of being set up. And while Segro has a presence across Central and Eastern Europe, Sleath still sees these as the key markets for the firm in 2014.

‘Those are the biggest markets in Europe, we think, in terms of potential, because frankly they’re big population centres,’ he said.

The healthy state of the market is attracting money from across the globe, Sleath said. ‘We set up our own joint venture with Canadian money, Prologis set up their venture with Norwegian money, there’s some money from Texas and Canada that has been invested. There’s evidence that investors from Asia are trying to get exposure to the sector either directly or indirectly, so it’s a globally attractive asset class.’