Changing face of logistics as creativity solves demand issue

Ever-increasing demand is leading logistics developers and operators to be more creative, experts agreed at Real Asset Media’s European Logistics – Key Trends & Market Outlook briefing, which took place recently at MIPIM in Cannes.

Events ranging from the pandemic to the war in Ukraine have strengthened the onshoring trend, making logistics assets in Europe even more sought-after.

“You can hope that the supply chains will work but it has been shown how fragile they are, so occupiers will have to re-assess their choices,” said Tom Kinsley, executive director, European logistics investment, CBRE. “Onshoring will mean more warehouses and more logistics.”

Going forward there will be high occupancy rates and strong demand in most markets.

“We have a lot of clients who want more space because of Covid, the Suez Canal blockage, increased costs from China and so on,” said Remon Vos, CEO, CTP. “Manufacturing will also continue to drive demand, including from the defence industry which is set to grow.”

The creative response to current challenges takes different forms, from changing the kind of buildings to using more technology to focusing on sustainability.

Shortage of space means that warehouses are flexible and up to 18 metres high. “There will be more multi-storeys in future,” said Kinsley. “We need to build up and we need to be more creative.”

Logistics assets have changed beyond recognition, said Daniel Harris, senior managing director, head of European investments, Cain International: “Units have improved so much in terms of quality that they have transformed the industry. There are good facilities, double-height entrance lobbies, windows, light streaming in and solar panels on the roof. It’s another world.” 

Addressing ESG also helps to attract scarce staff

Paying attention to ESG factors is not just what lenders and regulators want, but it also helps to attract staff in a sector where labour shortages are the norm.

“It’s tough to find the workforce, so it’s a smart move to work on the social impact and environmental fronts,” said Kinsley. “Occupiers demand more facilities now, and buyers are willing to pay more because they recognise the long-term value of the asset.”

Investors are ahead on these issues, and the more core the buyer, the more important ESG factors are.

“Ticking all ESG boxes has always been important for us because we want to make a difference,” said Vos. “For every 1 million sq m of warehouse that we build we plant 1 million sq m of forest and that makes us carbon-neutral. Having a long-term vision also means creating a pleasant environment for people who work there, with a clubhouse, sports facilities, free medical care and free housing on site in some of our parks.”

One inescapable trend seems to be the increasing cost of land across Europe, which is presenting new challenges to developers and investors.

“The shortage of land is a massive problem,” said Harris. “In London, land prices for industrial are higher than for residential, at £10 million an acre. These prices only make sense because rents are high, approaching £30 per square foot.”

Some choose to look further afield in order to find available land, or to pay less for the land.

“We’ve gone to B & C locations and shifted further East because of the lack of land,” said Jan Philipp Daun, chief investment officer, Garbe Industrial Real Estate. “It works for us as long as there’s the availability of labour and proximity to motorways, which are the two key factors.”

The increase in prices means that land is becoming more valuable than the building.

“Availability of land has become the biggest factor,” said Robert Dobrzycki, CEO and co-owner, Panattoni Europe. “The value of land will keep growing over time and will be 60-70% of the total value, so the building will be less relevant.”