Development and portfolio plays help logistics allocations

Capital is still lining up to acquire European logistics assets and currently could be as much as €200 billion, delegates heard at Real Asset Media’s European Outlook 2022 – Focus on Logistics briefing, which was held online recently on the REALX.Global platform.

The figure has been calculated by Cushman & Wakefield and the firm’s head of EMEA logistics and industrial research and insight Sally Bruer explained that demand increases as values increase and investors try to achieve their target allocations.

The consequence is that the sector is oversubscribed, Bruer said. “If you consider that the market was €65 million last year, that’s at least three times oversubscribed, but in a ‘normal’ year that would be five times oversubscribed.”

This is similarly causing increased interest in portfolios. “Portfolios have been particularly attractive because of the ‘big bang’ opportunities that they represent – being able to deploy a significant amount of capital in a single transaction,” she said.

Much of the capital targeting the sector is international in origin, Clarion Partners Europe managing director Rory Buck pointed out.

“Asia and the US have three times the logistics stock per capita than they do in Europe so a lot of people in these other markets see Europe as an opportunity to invest at a point in time that they have now missed in their home markets.”

In Germany’s case, the capital emanates both from existing investors wishing to increase their logistics exposure and from new entrants, according to Cromwell Property Group head of Germany Michael Bohde. “They stand on the sideline a bit, watching and observing the market, looking at prices, rents, yields and also for operating partners and service providers. But, very quickly they are ready to invest.”

He said that once all travel restrictions have been lifted he is expecting both Asian and US capital to be targeting Germany.

Challenges pile up for would-be logistics investors

But they will also discover that the market in Europe faces challenges including pricing, intense competition for assets, a shortage of land, labour shortages and now more than ever, geo-political risk.

Assembling a portfolio has become more challenging said Frank Pörschke, CEO, P3 Logistic Parks. “It requires a lot more work to assemble assets for the same amount of capital deployment. But when you have the competence and development expertise it helps,” he said.

However, land is difficult to find and gaining building permits is more challenging too, especially in Western Europe and and Czech Republic. “We are looking more and more at brownfield probably because fewer municipalities are prepared to openly dedicate greenfield land to logistics.”

Bruer agreed that development is attracting more investors. “We’ve seen more and more developers pushing into new geographic markets where they’ve previously not been active before. We’re seeing speculative development in some geographies where we’ve never seen it before or haven’t seen it for years, places like Ireland, and Portugal,” she added.