Business model changes make for rapid shifts in shed demand

Although occupier requirements for logistics and industrial buildings are still strong, the last couple of years have seen distinct changes in the nature of demand emerge, as participants heard during Real Asset Media’s Future Trends: Demand, Supply Chains, ESG & Logistics Real Estate briefing. The event was part of the Transport Logistic show staged in Munich, Germany.

Bert Hesselink.

“What we saw one to two years back was mostly big box demand driven by e-commerce,” said Bert Hesselink, group client relationship director, CTP, Czech Republic. “What we see now is much more demand from manufacturing operations,” he said.

This is reflected in the size of the space required. While enquiries for large fulfilment centres of 100,000 sq m-plus were previously not unusual, “now we’re especially dealing with a lot of demands from manufacturing clients whose ideal size of factory is 10,000 to 15,000 sq m,” Hesselink said.

Ingo Steves.

One explanation for the change is the need for supply chain security. “We see a lot of demand for manufacturing, reshoring, onshoring, friendshoring. Everything is coming back to European logistics clusters,” said Ingo Steves, managing partner, logistics Swiss Life Asset Managers, Germany.

Occupier requirements are subject to fluctuation from year to year, as Raimund Paetzmann, Vice President Real Estate and Logistics Network Expansion Zalando SE, Germany, pointed ouf. His company has experienced a period of “hyper growth”.

Raimund Paetzmann.

“It means you’re in this 20-25%, year-over-year growth. This exponential growth basically means doubling every three years.”

This had been expected to continue but then, “one year growth is at 4% – as happened last year – and there will be sudden over capacity”.

The difficulty caused by such fluctuations is that there is an increasing lead in period to obtain new space when demand, as expected, resumes the previous pace.

“When I started in real estate we could really manage to do a building in 14 months from the decision to build it. Now it takes four years at the most optimistic because of the planning permits and the resistance.”

“I’m positive the demand will come back but I am a little bit sceptical about the rent.” Paetzmann said, adding that logistics building owners have “became a little bit greedy on rent.”  

Sally Bruer.

“Everyone wanted to have a piece of the cake,” he said. “I think we need a kind of consolidation. Rents will increase, but I think it cannot go on like this because it’s difficult for the occupiers to make it work.”

However, Sally Bruer, head of EMEA logistics and industrial research and insight Cushman & Wakefield, said in its latest forecasting round the firm concluded that it expects prime rents to continue to grow at the headline level, but there are signs that incentives are being offered to occupiers. “It’s patchy and perhaps in markets where there is a little more supply than others.”

But incentives are not the preferred answer as far as Steves is concerned. A realistic offer is key, “because we need a partner, a consistent customer paying the rent and you need to look at a 10- to 20-year partnership with them so your proposal needs to be realistic.”