There is record take up and continuing strong demand, but is there enough availability and at what price? Liza Helps.
Take up of logistics warehouse space across Europe hit record highs in 2015 and it is showing no signs of slowing down. According to BNP Paribas Real Estate’s latest research take-up increased by 28 per cent in 22 cities across Europe, but the lack of prime supply is still affecting the market.
Germany remains the largest single occupier market in Europe. The volume of transactions reached its highest level ever recorded in 2015 at 5.2 million sqm.
The French market also recorded its highest take-up levels in 2015 since 2008. The volume of transactions increased by 17 per cent to 3.1 million sqm. While in the UK, the volume of transactions increased to nearly 3 million sqm in 2015, up 5 per cent on 2014.
Tornow of JLL says: “The last year has seen record levels in take up nationally in Germany, Italy, Russia, Spain and the Netherlands.”
In total some 17 million sqm was taken-up, easily surpassing 2011’s record of 15.3 million sqm.
Amaury Gariel managing director of EMEA industrial and logistics at CBRE, says: “Take-up has been driven by rising private consumption, supply chain consolidation and an increase in the scale of logistics operators.”
This is borne out by JLL’s recent research which points out that the spectacular upward trajectory of take-up continues to be propelled by ever changing retail patterns and, in particular, expanding e-commerce (28 per cent rise in attributed take-up) and a rejuvenated manufacturing sector (30 per cent rise).
“And now Europe’s gradual economic recovery is turbo-boosting demand. As a result, many markets witnessed record years or cyclical highs in 2015. Demand is high and is high everywhere,” says Tornow.
While demand has increased, the amount of development of new space has not with the result that high-grade supply has declined to its lowest level. According to BNP Paribas Real Estate: “Demand for new high grade warehouses remained stronger than availability in most markets.”
Existing vacancy rates are low. Gariel says: “Booming demand has seen availability falling across the region with vacancy rates in Europe now at just 5 or 6 per cent.”
Developers are noting continued high occupancy across their portfolios. Ben Bannatyne European president of Prologis says: “Occupancy across our European portfolio is the highest on record. The UK is the strongest market followed by northern Europe. Select markets in central and Eastern Europe as well as southern Europe also demonstrated impressive growth.”
At the end of 2015, occupancy in the Prologis European portfolio increased 90 basis points over the year to 95.8 per cent after leasing agreements totalling 1.05 million sqm were signed.
And developers are looking to keep occupancy levels high. Philippe Van der Beken, managing director for continental Europe at Goodman, says: “Our focus has been on sustaining a high-level of pre-lease agreements for new developments and maintaining a high occupancy rate of 98 per cent across the portfolio.”
A growing imbalance between strong demand and a severe shortage of supply is putting rental values under pressure across all regions.
Tornow says: “Prime headline rents have been flat over last three years and there is more pressure to rise this year with space availability at a cyclical low coupled with stronger demand across more markets.
Rob Hall, senior director and co-chair EMEA Logistics at Cushman & Wakefield, says: “Prime rents in Europe are expected to grow at an average rate of 1.6 per cent a year up to 2020, over performing the growth expected in offices and retail over the same period. Dublin is forecast to [rise]the most, with expected annual rental growth of 5.3 per cent up to 2020.”
In these circumstances one would expect there to be speculative development but Logan Smith of BNP Paribas Real Estate says: “While speculative supply has returned, it has not been at the levels seen at the last peak.”
Tornow adds: “Speculative development currently makes up 26 per cent of the total and without Russia it makes up just 20 per cent of the total amount of space developed in the last year.”
In Germany there was just 200,000 sqm of speculative development out of four million sqm built over all. There is only one area where speculative development has made a positive difference to supply levels across Europe and that is in the UK, where availability rose by some 50,000 sqm in the past year due to the amount of space being speculatively developed.
Those developers and funds considering speculative development are being very cautious and only developing in prime locations where demand is high and supply levels are low or non-existent.
Verdion is developing the second phase of its ExpoPark Hannover situated in a prime location on the edge of an established industrial estate eastward of the Weltausstellungsallee. Phase one, completed by Verdion in 2014, comprises a 59,821 sqm ‘built to suit’ unit let to global outsourcing provider Arvato (part of the Bertelsmann Group).
Phase two of ExpoPark will see the development of a 42,000 sqm distribution centre, with mezzanine office space, creating up to six individual units available to lease. Completion is due later this year.
Property Investment Managers secured an 80,000 sqm site for speculative development in Madrid, Spain. John Thompson director at Rockspring Iberia says: “This acquisition will enable us to create a high quality scheme on one of the best industrial sites in Madrid, at a point in the cycle when occupier demand is clearly strengthening and the availability of quality stock in the area remains extremely low.”
The site on the Los Gavilanes Estate in Getafe will provide about 60,000 sqm of Grade A logistics space. Construction is due to start shortly and completion is scheduled for early 2017.
With demand so strong though, the majority of speculative space is quickly snapped up. Rockspring has already had success in its joint venture with Verdion in Germany with a speculative development securing an occupier within a few months of the build starting on site.
International logistics services company Dachser pre-let 5,000 sqm of space at the joint venture’s Verdion Airpark scheme in Berlin, Germany, just 10 weeks after works started in December 2015.
The warehouse is one of three totalling 15,000 sqm being built speculatively at the €90 million scheme. The units have been flexibly designed to the highest specification to meet the strong market demand from 3PLs, retailers and e-tailers seeking urban logistics space in close proximity to both Berlin’s Airport and Berlin city centre. Completion of the first phase is expected for 30th June 2016.
Stuart Reid, Rockspring partner overseeing Germany, said: “Our commitment and confidence to invest speculatively with our partner Verdion on the edge of Berlin in Schönefeld has paid off with the swift letting of the first unit at Verdion Airpark. This is a quality product in a proven logistics location with strong growth prospects.”
Verdion Airpark, Berlin is located within two km of the new Berlin Brandenburg Airport and adjacent to key road and rail infrastructure. The 92,000 sqm scheme will be delivered in phases, with both speculative and ‘built to suit’ opportunities for warehousing units ranging from 5,000 sqm to 40,000 sqm.
A similar occurrence saw developer P3 let a 28,000 sqm speculative warehouse at its P3 Bucharest Park in Romania, which was only started on site in October 2015. The deal sees European retailer Carrefour pre-let the building as part of a deal to establish an 81,000 sqm logistics hub at the park. The logistics facility will be completed in phases between April and October 2016. CBRE advised Carrefour.
Strategically located approximately 13 km west of Bucharest city centre, P3 Bucharest park is fully occupied. In addition, there is land that can be developed to provide around 114,000 sqm of additional space in units ranging from 4,000 sqm to 40,000 sqm.
P3 Bucharest offers direct access to and high visibility from the new A1 motorway. The park is close to the city’s ring road that provides easy access to its six districts, to Henri Coanda International Airport 22km away and to the A2 motorway.
While some speculative developments have taken place, demand for new high grade warehouses remains stronger than availability in most markets. As a result, design and build solutions continued to be a strong alternative, particularly for large units.
Cushman & Wakefield’s Magali Marton, director, EMEA Research says: “Retailers as well as industrial companies are completely reshaping their supply chain in favour of built-to-suit solutions in a market where there is a clear mismatch between demand and supply.”
Developers are meeting this need through the acquisition of land and bringing it forward for development. P3 has a land bank suitable for the development of up to 1.3 million sqm across Europe. Other developers such as Prologis, SEGRO and Verdion also have considerable holdings on a build-to-suit basis.
Germany: Focus on the big box market
The current focus for occupiers looking to take space in Germany is on those locations where there is land available for big boxes or city locations for e-commerce,” says Rainer Koepke of CBRE.
According to BNP Paribas Real Estate’s latest Pan European research: Germany has experienced a record breaking year in terms of take up with some 5.2 million sqm let or sold – driven by the growth in e-commerce and the boom in the automotive industry. In fact e-commerce demand and take-up grew by 28 per cent.
According to Andrew Gulliford of SEGRO: “In terms of supply, Germany is a country of two halves vacancy rates in mid and northern Germany are generally around 6 to 7 per cent with not much speculative development. Undoubtedly though there is a greater availability of land which means that the occupational requirement can be met with pre-let or pre-sale. It is quite a different look in Southern Germany in particular Bavaria, Munich and Stuttgart where supply is restricted and municipality response strongly adverse.”
For many occupier and developers the way forward is through design and build. “It is much easier to get planning if you have an occupier,” says a developer who wished to remain anonymous.
Goodman managed to secure planning for a site in Lahr, Southern Germany on the back of a deal with on-line fashion retailer Zalando. The 130,000 sqm logistics facility will be built on a 185,000 sqm former military site.
The new location will allow Zalando to serve customers in Southern Germany, Switzerland and France even faster, and to meet increasing customer demand. Test operations for the new site are planned for as early as autumn 2016, and once operational, the new Zalando facility will create about 1,000 jobs at the site located in the Upper Rhine region.
Strong demand in Germany has led to a decrease in availability of space with developers seeking sites to bring forward additional schemes.
P3 has bought 107,000 sqm of land in Gottfrieding near Dingolfing in Lower Bavaria, Germany. It is planning a 55,000 sqm logistics facility for new customers on the site, which is situated in a previously agricultural area on the A92 motorway leading from Munich to Deggendorf.
Jürgen Diehl, managing director for P3 in Germany says: “Since 2011 we have seen continued high demand for industrial and logistics space in Lower Bavaria and due to the stable financial conditions in the market, we are optimistic about the future.”
Its optimism is not misplaced as until this acquisition P3 only announced in November last year that it had achieved 100 per cent occupancy across its German portfolio.
The company is looking to provide new space at P3 Gottfrieding by spring 2017.
German property agency Realogis managed the sale of the property. The seller was ISARKIES GmbH & Co. P3 will begin the first of two construction phases in late summer 2016.
In terms of urban logistics the outlook is difficult as suitable space, especially second hand, is very scarce. Warehouse space has not been a feature of the urban landscape making for an acute shortage of city logistics space in the big seven cities of Berlin, Stuttgart, Munich, Frankfurt, Cologne, Dusseldorf and Hamburg. SEGRO has just picked up a substantial site near Frankfurt – a former US depot known as Rodelheim as well as another site in Cologne to cater for just this type of need.