Developers are looking to acquire sites in the key locations of Europe to satisfy growing demand. Liza Helps reports.
Demand for logistics warehouse space across Europe is soaring as the economic climate stabilises and improves.
JLL’s most recent Industrial & Logistics research shows that occupational activity surged 28 per cent year-on-year with 7.8 million sq m of space taken up in the first half of 2015.
The biggest increase in activity was seen in the Central & Eastern European markets with an 80 per cent year-on-year growth as manufacturing companies responded to a more sustained demand for goods. According to JLL, take up of space by manufacturing companies rose 172 per cent year-on-year.
Dirk Sosef, director of research & strategy at Prologis, says: “The structural driver of demand is supply chain reconfiguration. A lot of logistics companies are changing their distribution strategies to more Pan-European networks. They need to consolidate across units into bigger facilities in key hotspots and shift away from older smaller units to more modern logistics stock.”
Machiel Wolters, head of EMEA industrial and logistics research at CBRE adds: “There is a strong qualitative aspect to occupier activity and in more mature markets with older property stock this trend has been visible for sometime, but economic recovery is now adding an extra driver to this demand.”
He notes that the emphasis on supply chain restructuring, flexibility in warehouse deployment and the search for economies of scale have led to a requirement for large-scale sites especially from third party logistics service providers and large on-line retailers.
“This trend is facilitated by improved infrastructures in Europe, improving accessibility over longer distances and lowering transport costs.”
As already noted this has led to a shift of upstream distribution operations towards large-scale facilities, located at strategic locations that are able to offer sufficient land and personnel at an efficient cost level.
The increase in XXL warehouses is leading to clustering of facilities in hubs or campuses, a feature most prominently visible in Central & Eastern European markets.
In Western European markets, the increase in scale is often accompanied by a geographical shift, as large-scale plots of land are not available, or are too expensive, in traditional hubs. In Benelux for example this is resulting in an eastward shift of operations.
While there is a surge in demand there is also a lack of modern product. Sosef notes: “While the EU trading block has more inhabitants than the US it has three times less Class A stock that can be defined as modern.”
Tim Davies, head of EMEA industrial and logistics, at Colliers International, agrees: “The industrial and logistics market in Europe continues to be characterised by constrained availability of high quality warehouse and distribution space.
“In Germany the availability of good quality space remains very low in all major logistics markets and the development pipeline is not alleviating the problem, while key logistics locations in Holland are also seeing a lack of modern supply. In Southern Europe the supply of high quality logistics units is very scarce, leaving many occupiers’ requirements impossible to meet.”
The latest CBRE research notes that vacancy rates in the main hubs of Europe are moving between 5 and 7 per cent with tighter market conditions prevailing in the UK.
Sosef says that in 2009 there was a 12.5 per cent market vacancy across Europe but this has now halved to a mere 6.9 per cent as occupiers have absorbed existing stock. “There is hardly any new on the market,” he adds.
IDI Gazeley reports that since the second quarter of the year it has been running its portfolio in Europe at a 92.3 per cent occupancy and a 93 per cent occupancy for units over 100,000 sq m.
Indeed, Wolters warns: “Occupiers looking in the core logistics locations could find it difficult as demand grows following economic recovery. There is a need for more development and construction to feed that demand.”
It is something that developers and investors alike are keen to address. And there have been moves from all the major property companies to increase their land holdings in key strategic locations.
SEGRO boosted its considerable European land bank and portfolio when it acquired a 90 per cent stake in Italian real estate development and investment company Vailog, which brings with it existing leased properties and a 100ha land bank (and options over land) to be found in the major European logistics hubs of Milan, Bologna, Rome, Paris, Lyon and Arnhem in the Netherlands providing a total of up to 500,000 sq m of logistics space following development.
The transaction allows SEGRO to establish a strategic big box warehouse presence and operating platform in the important northern Italy logistics market with opportunities to grow additional scale through development.
David Sleath, SEGRO’s chief executive officer, says: “Northern Italy is one of the major Continental European logistics markets, benefiting from a strong manufacturing heritage and an affluent population. SEGRO has been active in the region for some time but the acquisition of Vailog provides an immediate logistics platform there. Together with the benefits of adding critical mass to our existing big box logistics presence in Paris, this acquisition provides significant future development opportunities.”
The 100ha land bank is mainly around Milan and other major logistics markets in northern Italy and is capable of supporting 338,000 sq m of development within the next five years.
Agreements have been signed to acquire two plots of land in Piacenza and Lyon totalling 14ha for €5.3 million capable of supporting 63,500 sq m of logistics space.
In another hotspot, Hannover, Verdion recently snapped up a 8.3 hectare plot for the Phase Two expansion of its existing logistics scheme Hannover Verdion Expo Park. The site is located adjacent to Verdion’s 59,821 sq m warehouse let to Arvato, part of the international Bertelsmann Group.
Phase Two will enable a further 50,200 sq m of Grade A logistics space in a highly sought after location for e-commerce and 3PL companies. The site is situated in a prime location on the edge of an established industrial estate, eastward of Hanover’s Weltausstellungsallee.
André Banschus, Verdion’s country manager for Germany, says: “Hanover is an area of strong occupier demand and notable land scarcity. Our initial Phase One investment and development created one of Europe’s finest ecommerce platforms. Phase Two will be attractive to many logistics, ecommerce and related outsourcing companies seeking similar high quality logistics facilities. As such, we have already received a lot of interest from potential occupiers.’
Near Frankfurt, IDI Gazeley secured a 6.8ha site in Mannheim, capable of accommodating a 10,000 sq m logistics warehouse. IDI Gazeley is in the process of obtaining a building permit for the site to develop it into a multi-functional warehouse scheme suitable for logistics and light industrial use.
Michael Gerke, senior development director at IDI Gazeley Germany, says: “This acquisition underpins our long-term strategy to identify stabilised assets and land for development in Class-A locations, to further expand the choice and availability of land and assets for our growing customer base.”
As far as speculative development goes Nigel Godfrey of IDI Gazeley says: “While we predominantly secure lessees on a Build-to-suit basis, speculative development is not ruled out.
“We aim to get all of our sites oven-ready because speed of delivery to market is important.”
Mike Hughes of Verdion adds: “Securing land for development [in Continental Europe] is very rarely an issue and most development is build-to-suit; however, there are some exceptions in the major cities and freight hubs. For that reason developers may seek to secure sites and possibly develop speculatively.”
One way of providing speculative schemes is to piggy-back the development off a pre-let deal. Andrew Gulliford of SEGRO says: “In general customers [in Continental Europe] are happy to share the same site with others. For example in the Czech Republic we pre-let a unit at SEGRO Logistics Park Prague to Ikea and speculatively developed the rest of the scheme, which eventually was leased to Promed; it is what we call a pragmatic speculative development.”
Goodman is providing speculative space at its latest scheme in Germany in just such a way. It has acquired a 7.2ha site at bayernhafen Nuremberg, the largest multimodal freight village in southern Germany, where it will develop a 42,000 sq m logistics centre. It has secured two pre-lease agreements with logistics service providers STUTE and DB Schenker, with the remaining space to be developed on a speculative basis.
“The commercial success of the Nuremburg project confirms our disciplined approach to land banking. Our purchasing decisions are based on consultations with our customers and our analysis of the market to secure the most attractive sites,” said Jordan Corynen, Goodman regional director for Germany, Austria and Switzerland. “We have secured additional prime locations throughout Germany, on which a further 457,000 sq m of logistics space can be developed.”
The new facility has 12m eaves and will include LED lighting throughout as well as insulated dark-tube radiators to reduce consumption costs. Once the property is completed, it will receive a silver certificate from the German Sustainable Building Council (DGNB).
In addition to Nuremburg, another port-based project, Goodman Interlink Hamburg, will shortly be completed and will have 8,500 sq m of remaining space for lease.
Trends: Bigger and bigger
Are warehouses getting bigger? According to Amaury Gariel of CBRE: “Twenty years ago 20,000 sq m was huge now 200,000 sq m might be more like it.
“The trend to ever larger space is a global one, much driven by changing supply chain needs in retailing, manufacturing and with the growth of ecommerce.”
Dirk Sosef of Prologis agrees: “They are generally getting bigger and although there are XXL facilities, the majority of new development sites are in the region of 30 – 50,000 sq m.”
As markets become more Pan-European 3PL facilities in particular are getting larger says Machiel Wolters of CBRE: “Admittedly this is mostly led by specialist large 3PLs because they serve many clients and they have a strong incentive to concentrate and consolidate their footprint but other smaller transport companies and retailers are following the trend to cash in on economies of scale in strategic central locations.”
Earlier this summer the WMF Group celebrated the topping-out ceremony of a new 21,000 sq m distribution hub in Dornstadt, near Ulm. The new development, built by Goodman, is part of a broader logistics improvement strategy by WMF Group to enhance the efficiency of its supply chain, which will see the consolidation of 33 warehouse locations into two strategic hubs. The Dornstadt facility will be complemented by a separate new 40,000 sqm development by Goodman in Bergkamen, which is now operational and managed by DB Schenker.
The consolidation of its logistics operations will provide the WMF Group with several strategic advantages. Firstly, the centralised hub strategy simplifies storage and distribution. Previously, all brands of WMF Group had their own logistics operations, resulting in inefficient processes with unnecessary ordering complexity for its dealers.
Secondly, the company can now establish a uniform IT infrastructure, replacing the 13 different IT systems that were previously in use and therefore, among other things, measure and predetermine product demand more accurately.
WMF Group also benefits from the excellent infrastructure of both locations, with multimodal connections to the sites in Dornstadt and Bergkamen. Both distribution hubs are connected to major transport axes, which provide optimal logistical supply to local and international markets.
“This consolidation is typical of a larger trend by various companies seeking to enhance their logistics networks and searching for cost-savings and optimisation,” explained Christof Prange, head of business development, at Goodman Germany.
E-commerce has been perhaps the largest driver of the demand for large sheds. These facilities are typically located in more rural areas but with good access to important motorways to provide easy access to major urban areas. At the same time, they need to be located close to a large enough labour pool to staff the distribution centres.
Goodman developed two mega sheds for e-commerce company Zalando in Germany one in Regiopark in Mönchengladbach totalling 134,000 sqm and the other of 128,000 sqm in Erfurt.