Friday 22nd Nov 2019 - Logistics & Supply Chain

Southern hot spot

As usual with the Wall Street Journal, it says one thing and the market does another. Just as the US financial newspaper asked the question: ‘Is Spain too localized?’, Deutsche Bahn announced its deal to buy Spain’s Transfesa. The logistics market is booming as loudly as the UK market is. Property consultant Kind Sturge recently said that the strongest logistics rental growth in Europe was in Spain and the UK.

The German national railway operator announced it had signed a deal to buy a majority stake in Spanish logistics firm Transfesa in a deal said to be about about €130 million. As if following the logistics rental trend, it also said it was after Britain’s EWS for €460 million and Spanish logistics firm Spain-Tir for €150 million.

Meanwhile, the WSJ contends that a growing number of Spanish business leaders and policy makers are warning their country’s devolution of powers to regional governments has gone too far, creating barriers to commerce and investment within the European Union’s fifth-largest country. While Germany last year moved to streamline its legislative process, Spain and the UK have been handing over basics such as health care and education in an effort to assuage ethnic tensions and improve government accountability. Spain also has devolved wide powers for regions to legislate over transportation, commerce and the environment, among other areas.

In the 32 years since dictator Francisco Franco’s death, Spain has gone from being one of Europe’s most centralised countries to one of its most decentralised. But the proliferation of regional legislation means that, in some cases, companies have to abide by 17 different regulatory frameworks in their domestic market. For example, in Spain’s heavily regulated retail sector, more than 700 national and regional norms dictate opening hours, sales periods and other aspects of business. And many Spanish regions have banned new-store openings of retailers more than 1,500 sq m.

A visit to the International Logistics and Material Handling Exhibition in Barcelona shows how companies are hardly struggling under the yoke of bureaucracy and taxes. They may complain about them but around 45,000 property professionals and others from around the world went to the exhibition this year. It’s a mini-MIPIM and includes an awards ceremony where the Logistics Centre Madrid Sur Ciudad Real was awarded the Best National Logistics Project. This development includes the first international private airport in Spain, with a total investment of €1.1 billion. Thanks to its adjacent location to the high-speed train line, Madrid-Seville and to the passenger station, the users of these facilities will be only 45 minutes away of Madrid and Cordoba. The airport is also located next to main highways.

Look at consolidation in the logistics industry. It has tended to go in Spain’s favour recently. Where a multinational group buys another multinational group, the Spanish logistics operations are generally safe. When UK-based Imperial Tobacco Group said it had finally won over takeover target Altadis SA, which makes Gauloises, Gitanes and Ducados cigarettes and Montecristo and Don Diego cigars, it said, of course, that the headquarters of the combined company will be in Bristol, UK, but the cigar and logistics businesses will be based in Madrid.

Look at what the developers and landlords are doing. Property investor Martifer SGPS, which has a €500 million property portfolio of shopping centres, retail parks, and logistics centres says it is currently eyeing opportunities in Spain and Eastern Europe.

The only cloud to hang over Iberian property – apart from the groanings of the WSJ – is the slump in Spain’s residential property market. Anyone watching the cranes at work on the Costa del Sol in the last couple of years could work out that oversupply, coupled with rising interest rates, would force a correction in residential pricing.

Still expensive
This has causes share prices to fall across the Spanish quoted property sector. But don’t assume that there’s anything wrong with commercial property in Spain – unless you want to buy there or rent there. Then you will be depressed at how expensive it is.

Barcelona is the hottest spot, situated between Spain’s three largest sea ports, in terms of cargo volume. Research by property consultant King Sturge says the total industrial space (including all unit sizes) is around 12.5 million sq m in the Barcelona region and there is current availability of around 600,000 sq m, though the majority of this is outside of the city area of Barcelona and comprises older, obsolete stock.

‘As there is a shortage of land near the city, industrial properties closest to the city have been lost to higher value residential, retail and office uses and so logistics companies are being forced to locate further from the city itself,’ says King Sturge’s Oscar Begueria. ‘It is very difficult to find suitable sites at a distance less than 30km from the centre.’

New logistics areas are developing along the Ap-7 highway (E15 north-west), to the south at Penedes and Tarragona, and to the north at Valle Oriental and La Selva. Improvement in the A-2 (E90 Barcelona-Zaragoza-Madrid) will probably make the west area of l´Anoia suitable for new developments.

Begueria says: ‘The main characteristic of the industrial market in Barcelona is the shortage of land and the high price of warehouses reflects the lack of new development opportunities. There are very few small warehouses or large logistics platforms to sell, and the demand for these products is very high.’

Demand for logistics space close to the Port of Barcelona continues to be extremely strong with units over 5,000 sq m the most sought after. There is strong demand too for owner-occupied small warehouses.

Rents are expected to rise around Barcelona driven by the limited space and new developments and even locations up to 70km from the city, such as Penedés, La Selva y Girona are likely to see some rental growth over the next few years. Prime rents in Parc Logistic Zona Franca currently stand at euro99/ sq m pa. The cheapest rents within city boundaries are at the El Prat site at €75/ sq m pa. Rents outside of Barcelona stand between €90/ sq m pa in the prime areas of Baix Llobregat and €32/ sq m pa in Girones. These relatively high rental levels are supported by high land values, up to €1050 sq m in L´Hospitalet area.

The Spanish capital Madrid in the centre of the country acts as a hub for freight from the rest of Europe, North Africa and South America. Madrid handles almost 35 per cent of all freight across Spain.

Demand for large units
Robert Agreda of King Sturge says that most logistics activity is concentrated inside the South and East city axes with the most popular areas along the A-IV (Andalucía Highway (E05)) and the A-II (Barcelona Highway (E90)) and between the ring highways M-40 and M-50. ‘The Madrid industrial market base has been moving from manufacturing to logistics and both domestic and international freight activities have increased rapidly over the past few years, generating demand for large warehousing units’ he says.

Agreda notes an increase in demand from post and express delivery companies for small warehouses (less than 1,000 sq m). Madrid offers more than six million sq m within seven main logistics zones and though there are some available units in these areas the overall vacancy is expected to remain low due to high demand for this type of warehouse, until expected planning consent for new logistics zones is finalised. King Asturge research shows that, in 2006, 100,000 sq m of new logistics facilities were finished and another 1.1 million sq m was under construction by the end of the year. Bespoke turn-key developments accounted for a further 135,000 sq m. In the next two years, expect talked-about schemes to be in Torrejón, San Fernando de Henares, Carpetania, Leganés, Cabanillas del campo, Noblezas and Montigola. Agreda says these are likely to moderate rental growth.

Rents have been increasing during the last three years in all prime logistics locations. Several high rental transactions in the locations around the A-2 (Barcelona Highway) have pushed up the rent levels in these locations. Around Coslada, near the Barajas airport, rental levels have seen an average increase of 6.5 per cent over the last three years. Current rents in the area are around €86.5/ sq m pa. In the south, Getafe and Leganés have also seen large increases in rental levels. Further along the same A-4 highway, Valdemoro (23km from Madrid) and Seseña (30km from Madrid), have seen the most rental growth with average increases up 19 per cent.

Agreda says: ‘In the short term, we expect a lot of new space currently under construction will be swiftly let, due to the current high levels of demand in the Spanish logistics market. Rents are under a lot of upward pressure at the moment, but as the new schemes are built out, over the longer term, rents will stabilise.’

Valencia, located on the Mediterranean coast is the third largest city in Spain and its seaport is one of the three biggest in the country and competes for second place in terms of cargo volume with Barcelona. Over the last few years, the city has benefited from large structural investment in preparation of hosting the 2007 Americas Cup. More than €1.6 billion has been invested in the city to improve motorway and rail networks, enlarge the airport and improve the infrastructure around the maritime port.

King Sturge identifies a lack of modern logistic supply, current available space being generally smaller with lower eave heights than required. This unsatisfied demand has triggered some development however, but it’s unlikely the planned space will meet existing requirements in the market. New development in 2007 includes ProLogis Park Masalaves which will bring 135,000 sq m to the market. The new park is located 32km to the south of Valencia along the A-7(E15) motorway. Five other new logistics parks are also due to be completed during 2007. Before the end of 2008, Valencia will have nine logistics parks with a total surface of more than 1,000,000 sq m.

Demand in Valencia
Demand for logistics space has been growing around Valencia since 2005 driven by increasing traffic through Valencia’s seaport. Demand from different occupier sectors have been clearly separated into four logistics hubs in the Valencia area.

Heavy industries and logistics operations are generally concentrated to the north around Sagunto. The town of Ribarroja, 15km from the city, has a high concentration of parcel, long distance and freight forwarding companies. Retailers and large grocers tend to locate in the Picassent area and general parcel/postal companies prefer to locate around Massalaves.

Although generally rents have been stable there has been some steep increases in some certain areas. The strongest rise was around the area of Ribarroja and Paterna, 5km north east of Valencia. King Sturge expects rents to increase in 2007 with better growth in areas more than 20km from the centre offering large modern facilities. The higher occupancy rates around the port and near the city may also push up rents in these locations.

Rents for prime logistics space currently stand at €48 per sq m pa with small units attracting slightly higher rents – the highest rents touch €54 per sq m pa. Land values for logistics uses are around €360 per sq m in prime locations.

Period of growth
King Sturge’s Juan Collado says: ‘Valencia’s logistics market is in a period of growth, due to the socio-political stability in the region and the importance of the city’s seaport – the second largest in Spain and one of the most important in Europe. The logistics market will dramatically grow over the next five years and will make Valencia an important logistics centre. The current low rents and good development potential make the area a strong competitor for logistics operators on a pan-European basis’.

Lisbon is more of a backwater. According to DTZ, the industrial market has been relatively quiet with no major developments or transactions recorded. The Portuguese Government has recently defined a logistics programme (Portugal Logístico) with the aim of launching several new logistic platforms in the near future across the country. DTZ puts prime industrial rents at €4.5 per sq m per month and calls them ‘stable’. ‘

Viewpoint

Juan Collado, King Sturge
‘Valencia’s logistics market is in a period of growth, due to the socio-political stability in the region and the importance of the city’s seaport.’

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