Magazine
9:00 3 April 2019
Post by: WBJ

Logistics market / Pan-European ambitons

WBJ sat down with Robert Dobrzycki, CEO Europe at industrial space developer Panattoni Europe, to talk about the prospects for the European logistics markets and the company’s further development plans across the continent. Interview by Adam Zdrodowski

Logistics market / Pan-European ambitons

WBJ: As we talk, the UK is on the verge of exiting the European Union. Has Brexit already had any major impact on the logistics property market in the country? Will such impact be seen at all?

Robert Dobrzycki: When it comes to the market fundamentals, they are still very healthy in the UK. The market is “tight” in the sense that new supply is only slightly bigger than demand and the vacancy rate is very low. Supply and take-up volumes have not decreased in any significant way, but it is true that the political uncertainty surrounding Brexit negotiations may, in the short term, delay some decision-making processes with regard to launching new projects and signing new lease deals.
What may also play a role here is the fact that lease agreements in the UK tend to be signed for longer periods of time than lease agreements in Poland. The commitment that a tenant makes is thus of a more serious nature, which may lead some companies to put off decisions until the Brexit situation becomes clearer. Indeed, at the moment it is very difficult to predict how things will play out and whether Brexit will have any major – positive or negative – impact on the level of demand for logistics space in the UK.

Has the situation changed your plans in the UK in any significant way?

We are very active in the UK, even though we are a newcomer in the market. Our current commitment there – meaning the value of the products that we have to deliver in the near future – is €800 million, which is quite a lot considering the fact that we have been present in the UK for only a year now. Of course, we are also in the process of negotiating new deals. We are now in eight locations in the UK, in the London and Birmingham areas. We want to expand into the Manchester and Liverpool areas soon.
Brexit has probably had some influence on our activities in the UK, but it has not prevented us from expanding in the market. Had it not been for the UK’s decision to exit the EU, we would likely have even more space in the country today. On the other hand, Brexit was actually one of the main reasons why we entered the market. The uncertainty made some of the established players a little bit less active, and we saw that as our chance to make a strong presence there within a relatively short period of time.


When it comes to mainland Europe, where is its logistics center today?


Germany is definitely the logistics heart of Europe at the moment. The country has everything the logistics sector needs to thrive: it is centrally located, lies on key roads and sea transport routes (it has some of the biggest ports in Europe and is a gateway to the continent for maritime shipping), has a very vibrant production sector, exports a lot of goods and also features strong domestic consumption. Additionally, the CEE region – a supplier park for Germany – is just across the border.
Of course, CEE benefits from Germany’s position – we are very strongly connected with Germany, both politically and economically, and our high supply and demand volumes directly reflect the huge success of the country. It is very difficult to imagine a situation in which any country in southern or western Europe – be it Italy, Spain or France – challenges Germany’s dominant position on the logistics map of Europe. China’s growing activity may further strengthen the German and CEE logistics markets.


Germany’s existing stock is already huge – is there still much room for development?


Absolutely. Germany currently has approximately 80 million sqm of logistics space, but there is room for much more. We are now building around 300,000 sqm across the country, with our plans for the near future envisioning the delivery of some 500,000 sqm annually. That would account for about 10 percent of the total annual supply in Germany. By comparison, in Poland we complete 1.5 million sqm annually, which accounts for half of the aggregate annual supply of new logistics space.



Apart from Germany, Poland and the UK, Panattoni Europe is also active in the Czech Republic. What are the prospects for that market and what are your development plans there?


The Czech market resembles the market in western Poland in that it is a supplier park for Germany. Its western part is very conveniently located close to the automotive hub in southern Germany. Logistics centers in the Czech Republic can service locations in the CEE region, Germany and Austria so many companies are considering leasing space there. This pertains especially to businesses that do not need to hire many people as the shortage of employees is a bit of a problem in the Czech market at the moment.
We are very active in the western part of the Czech Republic and have recently also successfully entered the eastern part of the country. We now deliver approximately 200,000 sqm a year in the Czech market. This figure could increase to 300,000-400,000 sqm soon.


Will you enter any new European markets in the near future?


We are looking at France, which is a large, stable and liquid market and seems a natural market for us to expand. As a developer with pan-European aspirations, we have been thinking about the French market for some time, but we want to enter one market at a time. As we now grow ever stronger in the UK, it is probably time for us to start preparing an entry into France. This could happen later this or next year. We are yet to open a local office and acquire land there.


What are the main drivers of growth in the European logistics sector at the moment?


The e-commerce sector is now certainly the main driver of growth in the logistics property market across Europe. E-commerce companies keep expanding – probably at the expense of traditional retail – and they need more and more logistics space. It is difficult to measure exactly the demand generated by those companies, as some of our clients, including logistics operators, lease space that is partly used for online commerce and partly for other purposes, but we estimate that the e-commerce sector accounts for 30 percent of our European business.
An interesting aspect of this phenomenon, which we have not yet witnessed in Poland but which can be seen in Western Europe and especially in the US, is a kind of arms race between traditional retailers and companies such as Amazon. The former, aware of the fact that they reacted to the e-commerce revolution too late, are now desperately trying to make up for the lost time and are quickly expanding their online activities, which obviously has a positive influence on take-up volumes.


What about the production sector?


The production sector also continues to generate a significant amount of demand for new space, which is particularly visible in western Poland and in the western part of the Czech Republic. Germany has a strong production sector, but many of its companies have already moved or are going to move production to Poland or the Czech Republic to optimize costs. When it comes to the UK, it seems that the production sector there will not see significant growth in the near future and demand will rather be driven by other sectors.



Will urban logistics see further growth in the coming years?

Yes, for sure. There is more and more demand for urban logistics space, mainly because of the growth of the e-commerce sector. Also, such product is increasingly popular with investors, including with those who have so far only been focused on such asset classes as offices and retail. Such investors feel more comfortable buying urban warehouses than big-box parks in out-of-the-city locations. We have a strong pipeline of urban schemes in Germany and are working on such developments in a number of cities in Poland and the UK.


Is the impact of PropTech already visible in the logistics property sector?


By all means. Modern warehouses feature many solutions allowing for the automation and optimization of logistics processes, as well as for achieving maximum efficiency when it comes to maintenance costs. For instance, there is a trend towards building multi-level warehouse buildings. Warehouse properties are becoming increasingly specific, tailored to the needs of particular tenants, which is reflected in higher rents. However, the huge operational benefits that come with those solutions offset the higher leasing costs.


Logistics assets have been more and more popular with real estate investors in recent years. Where does this growing investor interest come from and will it continue in the near future?

This is a very natural process which, again, is the result of the growth of the e-commerce sector. Traditional retail is having a difficult time and many of the investors who previously bought retail assets have already offloaded them and are now investing in warehouses. The e-commerce-driven logistics sector is the new retail – the capital which used to be allocated in shopping centers is now being moved here. The logistics sector seems to have a brighter future than the retail sector and this is now attracting both experienced and new investors.


The logistics sector usually reacts to economic slowdowns very early on – are there any negative signals as far as the global economy is concerned in your industry?

No. We may hear about political uncertainty in Europe in the news, but business-wise we do not see any negative signals yet. We actually expect that in terms of demand this year will be even better than last year.


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