Robust financing structures key to deals in a challenging logistics market
Geopolitical shocks coupled with economic slowdowns across Europe have knock-on effects for logistics, but those with stable sources of equity have a clear advantage.
Until 2022, real estate project developers in Europe benefited from a generally benign market environment. Favourable financing conditions ensured that many projects could be implemented without any problems. In the logistics real estate market in particular, demand exceeded supply to such an extent that vacancies were trending towards zero in many regions and even speculative projects could be let quickly.
Mainly due to the recent geopolitical changes, financing conditions have become more challenging. External capital remains expensive for now and this trend is expected to continue. The ability to finance and execute projects therefore increasingly depends on a developer’s equity strength and a solid financial structure, as well as an excellent and trusted reputation. The result is a decline in project pipelines in many places, even in the comparatively very resilient logistics sector, which means the right location and the right time must be determined to acquire the site and develop the property.
Equity is the decisive factor for developers’ capacity to act
In the current market environment, real estate developers with stable sources of equity have a clear advantage. They can not only operate in uncertain times, but also successfully implement long-term logistics projects without having to rely excessively on external financing.
A developer with sufficient equity capital can take advantage of new opportunities to acquire or develop projects in a less competitive market. Particularly in times of changing global supply chains, financially strong companies are able to invest in logistics assets in Europe that are promising due to their geographical location and their connection to central European trade routes.
Countries with well-developed infrastructure systems, such as Germany and the Netherlands in particular, offer attractive opportunities, for example in the Ruhr or Amsterdam regions. But due to the great shortage of space, only a few free spaces are available, if any. If the respective capital exists for speculative developments, developers can secure those directly when the opportunity arises.
Sponsor structures as the backbone of crisis resilience
In addition to liquidity, a developer’s internal structures can prove advantageous. Owner-managed portfolios or fund managers that offer flexible equity mobilisation can act independently of the market cycle. This flexibility makes it possible to act in difficult market conditions as well as in upswing phases. This also means developers and investors can target projects in the current market phase that will benefit from certain trends such as ESG or e-mobility in the long term.
Alternatively, developers can act acyclically and initiate selected new construction, revitalisation or energy-related renovation projects – even if these do not yet appear profitable in the short term.
Good examples of this are long-term financed real estate strategies, which enable developers to make targeted investments in logistics properties in prime locations. These locations are often not only strategically important for the transport and storage of goods, but also attractive in terms of their long-term performance. In particular, logistics properties close to metropolitan areas offer stable returns even in difficult economic times and remain in demand, as demonstrated by the recent letting of our Stuttgart Southeast I project, which took place well before completion.
Cooperation and long-term prospects for investors
For investors looking for stable and profitable logistics projects in Europe in uncertain times, and who are drivers for strong demand for logistics space, there are many opportunities to collaborate with developer-investors.
In an increasingly complex and fast-paced logistics landscape, it is essential to have a competent partner with both local market knowledge and the ability to efficiently implement large logistics projects. Their local presence and expertise enable European developer-investors to react particularly quickly to market changes and they offer direct access to exclusive projects and networks.
Especially regarding land scarcity in central logistics locations, a strong Europe-based investor-developer can not only offer excellent local connections and market knowledge to identify prime plots, but also convincing arguments for local municipalities through their brand value to acquire those sites.
Flexibility and a long-term perspective are crucial in the logistics sector. In particular, the demand for modern warehouse space combined with new technologies such as automated warehouse systems or green logistics solutions is increasing. Developers with a solid capital structure and investments in promising projects can hold their own in the long term in a changing market environment.
