Logistics vacancy rates up but still below historic averages: P3

The European logistics real estate market “is holding up” said Frank Pörschke, CEO, P3 Logistic Parks. “Demand is everything in all sectors and as long as there’s demand then there can be success,” he told Real Asset Insight’s Richard Betts .

Although the economic environment has been more difficult, the structural tailwinds in logistics, mainly due to e-commerce and companies strengthening supply chains, have enabled it to hold up.

“We still have healthy demand which enables us to get along with the weaker numbers which we saw last year,” he said. Last year saw a lower level of leasing transactions but there was also less supply so vacancy rates only increased slightly. They are now a healthy 4-5% depending on which European market you are in. He pointed out that this is “far below the numbers which we know from the past where it used to be seven, to nine or even 10%.”

Last year was “a very particular year” for the investment market too with investment volumes decreasing by more than 50%. “Of course this has come into 2024, nothing has changed fundamentally. Now I think there’s a broad consensus that interest rate levels will decrease sooner or later.”

“This is a positive sign which could help the investment markets to recover,” he said.

P3 was very active in 2023 and will also look for opportunities in 2024, Pörschke said, adding that it is clear that owners are more willing to sell than they used to be.

“This will create opportunities which we will capture whenever we have the chance,” he said.

There has been “phenomenal” rent growth in the past few years, he explained, and although he expects this to normalise, “we will still see rent growth probably above inflation in the next two to three years.”

P3 recently issued its second green bond. “Until two years ago the bond markets were very active, they produced enormous liquidity, not only for the real estate sector but in other sectors on the debt side. Exactly two years ago this stopped and the bond market slowed down.”

“We had issued our first bond exactly two years ago, then we changed because we didn’t find the bond markets attractive anymore and got our debt through bank loans.”

Towards the end of 2023 and at the beginning of 2024 the bond market’s situation improved. “We took advantage of that and issued our first bond this year,” he added, “with a volume of €600 million, at very, very attractive terms. This is a positive sign for the future,” he said.

Pörschke explained that the bond issuance supports the company’s access to the debt markets and, with shareholder GIC, P3 also has access to the equity market. “If we want to grow we can grow and that’s also in our strategy for this year.”

P3 will continue to grow by acquiring completed property, which became an attractive option last year, and through development.

“Development is a core part of our business and we typically have at least €500 million of assets under construction, starting and completing in a year.”

Expansion is focused upon the 11 European countries in which P3 is already present. “The newest among them is the UK where we started last year and will continue this year,” he added. Each market is different and requires a different approach. “Most of the markets are very stable and the differences within the Eurozone are more modest than they used to be many years ago.” However, there is a difference in very supply-constrained markets including Germany, Netherlands, France, Spain , Italy and the Czech Republic, as well as in slightly more dynamic markets including Poland.

There is increasingly a bifurcation in the market between older and newer, more sustainable assets. “Whenever we do an acquisition, or when we look through our own portfolio, we ask the question ‘is this a sustainable building, what can we do with it to match future requirements’,” he said. “It’s too easy to say that only what is new is good. If you look also at the carbon footprint it’s not always the right solution to say ‘I need a new development’ so this is why we are looking at what we have to do to optimise our existing buildings.”

P3’s strategy is that 75% of its portfolio should be rated, in BREEAM’s terminology, very good or better. He added that the approach will be similar in the future, looking for those things that will improve the standard of the assets.