EUROPEAN LOGISTICS: warehousing the future - Savills Investment Management
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EUROPEAN
LOGISTICS:
warehousing
the future
WE SEE PROPERTY FROM ALL ANGLES
1
European logistics:
warehousing the future
United Kingdom
Expert insights
Contents
P36
Jon
France
P28
Crossfield
P20
04 19
Why and where to buy Logistics corridors Poland
logistics in Europe of Europe P34
Harry
de Ferry Foster
P26
06 21
Global recovery is boosting the Pan-European logistics:
European logistics market occupier Market Germany
P30 Daniel
Hohenthanner
The Netherlands
08 22 P32
P25
European logistics offers an attractive Pan-European logistics:
risk-return profile market size and liquidity
Artur
Mokrzycki
10 38
P18
The New Silk Road: a long-term Other countries of
economic development corridor interest
Wolfgang
12 40 Schneider
Technology-driven consumption fuelling Challenges for the P24
demand for modern logistics real estate logistics sector
CONTACTS
14 41
Urbanisation requires Why invest in
smart logistics solutions European logistics
KIRAN PATEL IRFAN YOUNUS HILARY WATERMAN
CHIEF INVESTMENT OFFICER HEAD OF RESEARCH, EUROPE REGIONAL FOCUS: IRELAND
kiran.patel@savillsim.com irfan.younus@savillsim.com hilary.waterman@savillsim.com
16
Digitalisation and the
rise of robots
NICOLE BÅNGSTAD JUDITH FISCHER BENEDICT LAI
REGIONAL FOCUS: NORDICS REGIONAL FOCUS: BELGIUM, LUXEMBOURG REGIONAL FOCUS: AUSTRALASIA
nicole.bangstad@savillsim.com judith.fischer@savillsim.com benedict.lai@savillsim.com
VICTORIA ORMOND ANDREAS TRUMPP NORBERT SCHLEY
REGIONAL FOCUS: IBERIA, UNITED KINGDOM REGIONAL FOCUS: GERMANY, POLAND REGIONAL FOCUS: FRANCE, THE NETHERLANDS
2 victoria.ormond@savillsim.com andreas.trumpp@savillsim.com norbert.schley@savillsim.com 3
European logistics:
warehousing the future
Why and where to buy KEY RECOMMENDATIONS
BELGIUM
logistics in Europe
Focus on assets in prime locations in the Brussels region
and along the Antwerp-Brussels-Ghent axis. Home in on
major urban areas that allow for shorter delivery times
and cost efficiency gains in distribution.
FRANCE
We recommend targeting mega-distribution centres as
well as modern, mid-sized centres in established logistics
The logistics business sector is one of the biggest Logistics properties have an attractive risk-return- locations with excellent transport links in the main
industries in Europe. It generates a revenue of profile compared to offices and high street retail. logistics corridor around the urban areas of Paris, Lyon,
Marseille and the northern region.
more than EUR 900 billion annually, represents just The yield gap between prime logistics assets and
under 7% of total GDP and employs more than 7 prime office and retail properties is relatively high. Seek cross-docked logistics facilities in or on the fringes POLAND
of major cities such as Paris, Lyon, Lille, Orléans and Seek build-to-suit fulfilment and distribution centres on 10+ year
million people.1 Moreover, logistics assets often deliver triple-net Marseille. leases with good quality covenants and significant tenant capital
leases with fully index-linked rents. expenditure investment that can be used by third parties in the
Consider selective opportunities for better returns
Increasing geopolitical tensions could mean more through partnering with local developers requiring top five locations: Warsaw, Katowice, Poznan, Wroclaw and
trade restrictions worldwide. However, new trade Investment in European logistics assets allows funding for part-speculative schemes or forward-funding Central Poland (Lodz).
routes and economic development initiatives offer for real estate portfolio diversification: compared pre-let schemes. Target generic, single-let warehouses on long-term leases and
opportunities for expanded transportation and to office and retail properties, logistics properties near major highways such as the A2/A4, S3/A6 and A2/S3.
GERMANY
logistics networks in Europe. Projects such as the deliver high distribution. In addition, total returns Consider highly customised, multilevel warehouses only when
Target mega-distribution centres in major logistics hubs
they are designed and let to tenants with good covenants and
New Silk Road, which will stretch from China to are more stable for logistics than for office and and points in the supply chain close to or between urban
on long-term leases.
Europe, will forge links between locations previously retail properties. areas (e.g., Ruhr, Hanover, Hamburg, Halle/Leipzig,
Rhine-Main). SPAIN AND PORTUGAL
isolated from each other, potentially creating
demand for new logistics hubs along the way. We see opportunities in cross-docked logistics Seek cross-docked facilities in well-connected locations While both countries have more limited links to global economic
in or on the fringes of major conurbations such as Berlin, activity, we recommend focusing on the capital city regions of
facilities of 2,000-10,000 square metres (sqm) in Hamburg, Frankfurt, Munich and the Ruhr area. Also Madrid and Lisbon. These major population centres have good
Technology is changing consumption, production or on the fringes of major European cities, mega- consider growing secondary cities such as Freiburg, infrastructure links and prosperous market environments.
and supply chains, with e-commerce growing distribution centres of 60,000-100,000+ sqm in Münster and Nuremberg.
THE UK
rapidly across Europe. Prologis research found traditional logistics locations close to or between We expect strong competition for attractive sites, so
liquid secondary cities and conurbations may offer higher Target logistics property around top-ranking cities on the Savills
that e-commerce retailers require three times more urban areas and modern, mid-sized distribution
yields. IM Dynamic Cities Index, particularly London, Cambridge,
logistics space than store-based retailers. centres. Edinburgh and Oxford.
Focus on well-connected multimodal locations, modern
and flexible Grade A properties and tenants with strong Seek mega-distribution centres in the golden triangle, and 3PL
Europe’s ongoing urbanisation is fuelling In this paper, we explore various structural shifts covenants. close to ports.
competition for land and demand for smart from which the logistics sector is benefitting and
logistics solutions. The more expensive feature interviews with experts, highlighting key THE NETHERLANDS BE CAUTIOUS OF…
and complicated processes of last-mile insights into their respective markets. Target newly built, modern and flexible distribution
logistics are spurring growth of cross-docked centres with good transport links, particularly in Out-of-town, multilet generic warehouses in Poland
established hubs in southern regions such as Noord- The current logistics property ownership structure in Poland,
distribution centres on the edges of towns Brabant and Limburg (Venlo). which consists of five dominant investors and developers
and cities as a go-between for national
Look for urban logistics opportunities in the densely
and pan-regional distribution centres. Kiran Patel populated Randstad area. Brexit US Turkey
We think a UK- Measures to Turkish President
Chief Investment Officer As availability of product remains a concern, we see
Increasingly automated factories and logistics EU divorce deal reduce America’s Tayyip Ergogan
value in forward-funding pre-lets and in local developer
allowing for a period trade deficit under could allow the 3
warehouses may enable traditional, labour- partnering for speculative development.
of transitional President Donald million refugees
intensive manufacturing to move closer to arrangements Trump could currently held back
THE NORDICS followed by a affect Eurozone from migrating to
consumers, allowing for more efficient use of
Look for modern, last-mile urban logistics facilities close form of free trade economies such the EU to leave
land. Furthermore, autonomous vehicles could to major Nordic cities, including Stockholm, Gothenburg agreement is most as Germany, and Turkey. This may
help revolutionise logistics supply chains and and Malmö. likely. However, in further US trade cause a rise in
transportation. the case of a hard protectionism could border controls
Focus on XXL warehouses where demand is driven by
Brexit scenario it is lead to European that would also
third-party logistics (3PL) and large online retailers.
likely that UK-EU supply chain significantly disrupt
1 Sources: Eurostat, Alliance for European Logistics supply chains may disruptions and logistics supply
be interrupted. tit-for-tat response chains.
measures.
4 5
European logistics:
warehousing the future
Global recovery is
boosting the European
logistics market
The European logistics market is benefitting from the steady
recovery of European economies since the global financial
crisis (GFC). More recently, global GDP has picked up
momentum, producing stronger tailwinds for the European
Union. According to Capital Economics, GDP growth has
become broad based, with both consumer spending and
investment posting gains. Growth is strong outside the
Eurozone, too, with strongest rates expected in Poland and
Sweden going forward (figure 1).
FIGURE 1:
GDP growth
FIGURE 1:
forecast
GDP GROWTH (%)
FORECAST (%)
EU 28 POLAND SWEDEN SPAIN NETHERLANDS DENMARK GERMANY UK FRANCE BELGIUM ITALY
FIGURE 2:
According to Markit, Eurozone composite FIGURE 2:
PMI remained high in Q3, only slightly Composite PMI
COMPOSITE PMI AND andGDP
EUROZONE Eurozone GDP
4.3%
below its spring peak (figure 2). The
main recovery driver has been domestic
3.5%
3.4%
58 1.2
demand. Furthermore, the strength of
3.1%
3.0%
3.0%
exports as well as both intra-area trade 57
2.7%
and trade with non-Eurozone economies 1.0
2.5%
2.4%
2.4%
2.3%
have been dominant drivers. 56
2.1%
2.0%
1.9%
Strong labour market recovery, including 0.8
1.8%
1.8%
1.8%
1.8%
1.7%
1.7%
1.7%
1.7%
1.7%
1.7%
1.6%
55
1.6%
1.6%
1.5%
increasing employment and decreasing
1.4%
1.4%
1.4%
unemployment rates, are also driving
1.1%
1.0%
54 0.6
household spending. Such trends are
fuelling further job growth, and Oxford 53
0.4
Economics expects real income and
52
consumer spending growth over the next
2017f 2018f 2019f
six months. 51
0.2
Economic recovery helps boost global
50 0.0
trade flows despite, for example, more Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
Sources: Oxford Economics, Savills Investment Management
Note: ‘f’ denotes forecast
protectionist US trade policies. All 2014 2015 2015 2015 2015 2016 2016 2016 2016 2017 2017 2017f
European logistics segments – from cargo Composite PMI Output Index (LHS) Eurozone GDP (% q/q, RHS)
to air and land freight – may benefit from
Sources: Markit, Macrobond, Savills Investment Management
this global economic recovery. Note: ‘f’ denotes forecast
6 7
European logistics:
warehousing the future
ACCORDING TO EUROSTAT
AND THE ALLIANCE FOR
EUROPEAN LOGISTICS, THE
LOGISTICS SECTOR IS THE
SINGLE BIGGEST EU INDUSTRY:
IT GENERATES A REVENUE OF
MORE THAN EUR 900 BILLION
ANNUALLY, REPRESENTS JUST
UNDER 7% OF TOTAL GDP
AND EMPLOYS MORE THAN 7
MILLION PEOPLE.
European logistics
offers an attractive European logistics properties have an attractive risk-return
profile compared to offices and high street retail. The yield
gap between prime logistics assets versus prime office and
prime retail properties remains high (figure 4). Furthermore,
Total returns for European logistics properties are more stable
than total returns for office and retail properties. According
to MSCI, the unweighted standard deviation for logistics
properties in 14 European countries between 2007 and 2016
risk-return profile
sites currently used for cross-docking in growing amounted to 4.7%, compared to 5.2% and 6.4% for office
conurbations could gain significant value because of the and retail properties, respectively (figure 5).
increasing competition for land.
While tenant improvement costs for office refurbishments in
FIGURE 4: Europe typically range between EUR 300 and EUR 500 per
Weighted
FIGURE 4: prime net yields versus weighted sqm, they are much lower for logistics properties (typically
EU 10-year
WEIGHTED government
PRIME NET bonds
YIELDS (EUROPEAN (%, VERSUS
AVERAGE) weighted)
WEIGHTED below EUR 100 per sqm). Investment in logistics assets is
EU 10-YEAR GOVERNMENT BONDS (%) crucial for real estate portfolio diversification, which, ideally,
helps reduce risk via investment in various countries, sectors
10-year bonds Offices
and lease lengths. Investment in logistics assets usually
Globalisation, global trade and international FIGURE 3: delivers stable cash flows through long leases: 10-year lease
LOGISTICS TURNOVER A ND PROPORTION OF GDP (2016) Logistics High Street Retail
division of labour have supported European terms are much more common in the sector, and investors
logistics sector growth over the last few benefit from usually triple-net leases with fully index-linked
decades. According to Deutsche Bank Logistics turnover (EUR billion, LHS) 9 rents.
Research (DB Research), global trade has Proportion of GDP (RHS)
outperformed the global economy over
8 FIGURE 5:
the long term, and trade within Europe 300
12%
7
AVERAGE STANDARD DEVIATION OF TOTAL RETURNS (%, UNWEIGHTED)
still takes the lion’s share of worldwide Logistics High Street Retail Offices
10% 6
commerce. 250 10%
14
9% 9% 9% 5
Increasing geopolitical tensions could 8% 8% 12
mean more trade restrictions worldwide. 200 8% 4
7% 7% 7% 7% 7% 10
However, new trade routes and economic 3
development initiatives such as the New 6% 6% 6% 6% 6% 8
150 6%
Silk Road offer opportunities for expanded 2 6
transportation and logistics networks in 1 4
100 4%
Europe.
0 2
Depending on geographic location and
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018f
2019f
2020f
2021f
2022f
50 2% 0
size of national industrial sector, European
-2
logistics sector proportion of GDP ranges
0 0% -4
from 6% in Denmark, France, Ireland, Italy 2007 2008 2009 2010 2011 2012 2014 2013 2015 2016
Germany
France
Italy
Netherlands
Poland
Switzerland
Sweden
Belgium
Austria
Norway
Greece
Czech Republic
Finland
Ireland
Denmark
UK
and Switzerland to 10% in Poland (figure 3). Sources: PMA (Autumn 2017), Savills Investment Management
Note: ‘f’ denotes forecast
Sources: MSCI, Savills Investment Management
Note: includes Austria, Belgium, Czech Republic, Denmark, Finland, France,
Germany, Italy, Netherlands, Poland, Portugal, Spain, Sweden and the UK
8 Sources: Oxford Economics, Savills Investment Management 9
European logistics:
warehousing the future
The New Silk Road: Merics – Look and Feel
a long-term economic
New Silk Road New Silk Road Asian Infrastructure Investment
maritime route land route Bank member countries
development corridor
Moscow RUSSIA
The New Silk Road – or One Belt, One Road Novosibirsk Tayshet
FIGURE 6: Kazan
(OBOR) initiative – is an emerging network Hamburg
THE NEW SILK ROAD Warsaw
of railways, highways, pipelines, special Rotterdam Łódź
Irkutsk
economic zones, commercial centres and Duisburg
POLAND
logistics hubs spanning from Central China Prague
to Western Europe (figure 6). According to
EUROPE GERMANY Budapest
Atyrau
KASAKHSTAN Ulanbaatar
Daqing
HUNG ARY BULGARIA Atasu MONGOLIA Harbin
the Royal Institution of Chartered Surveyors Venice Belgrade Burgas
Beyneu
Usan Khorgas Nachodka
(RICS), the area connected by the New Silk ITALY
SERBIA Anaklia Aktau UZBEKISTAN Bischkek
Changchun
Hunchun Vladivostok
SPAIN Ambarli Istanbul Urumqi
Road includes about 70% of the world’s GEORGIA Angren KYRGYZSTAN Shenyang Rajin
population, 75% of world energy resources Madrid
GREECE
Pireas Ankara
Gyzlgaya
TURK-
Pop
Samarqand Kashgar ASIA Beijing
Dandong
Chongjin
and 70% of global GDP. TURKEY MENISTAN
TAJIK.
Lanzhou
Duschanbe Xi’An
Zhengzhou
According to the Mercator Institute for China Teheran Gorgan
Studies (MERICS), a key word promoted
IRAN
by the Chinese government is ‘connectivity,’
the central purpose of the New Silk Road. Suez
PAKISTAN
Chongqing
Yiwu
The initiative offers opportunities to bring
Gwadar
economic development to parts of the EGYPT Nawabshah
Kunming
Changsha Fuzhou
Karachi Dhaka Quanzhou
world that have been isolated from one Nanning
Kolkata Guangzhou
another. The success of this project hinges INDIA
Beihai
Chittagong Hanoi
on geopolitical stability among neighbouring MAURETANIA Sittwe Luang
countries such as Russia, the Ukraine, Nouakchott Shwe Namtha Haikou
Azerbaijan and Armenia. AFRICA Massawa
gas field MYANMAR
Yangon
Nong Khai
Dakar ERITREA THAIAND
Ayutthaya
The planned construction of a new SENEGAL Bangkok VIETNAM
Belgrade-Budapest railway by Chinese Djibouti Map Ta Phut
ETHIOPIA
companies can clearly be attributed to GHANA NIGERIA
Dire Dawa
TOGO Sihanoukville
the OBOR. Furthermore, rail services CÔTE SOUTH Meta- Colombo
Benin City Ogaden
between China and Europe are increasing D’IVROIRE Lomé SUDAN Addis hara SRI LANKA
Lagos Ababa
Calabar Juba Hambantota Kuantan
in number and frequency. These services Tema SOMALIA Malé Kuala Lumpur
Abidjan CAMEROON MALAYSIA
are connecting various cities in China Kribi Pakwach Gulu KENYA Singapore
with destinations in Poland, Germany, the UGANDA Tororo Mogadishu
Libreville Kasese Nairobi Lamu
Netherlands, Belgium, France and Spain. GABON Kisumu
Kigali INDONESIA
Sao Tomé & Principe
According to MERICS, OBOR projects in RWANDA
Mombasa
the EU often involve container terminals and TANZANIA Bagamoyo Jakarta
railways. For example, the China Shipping Luanda Dar es Salaam
Bandung
NAMIBIA Njombe
Group Company (COSCO), a logistics giant, Walvis Bay Luau
ANGOLA Mtwara
acquired a controlling share in the Greek Lobito
Piraeus Port Authority in 2016. COSCO and Huambo
MOZAMBIQUE Chinese e-commerce giant Alibaba’s decision to target Deutsche Bank recently announced that it will
other Chinese port companies have also Maputo, Beira
Projects subsumed under the OBOR by Chinese authorities: locations along the New Silk Road train route for its partner with Chinese Development Bank to finance
invested or announced intent to invest in
European expansion creates possible demand for a infrastructure projects of up to USD 3 billion. In
seaports in Belgium, the Netherlands, Italy, proposed Oil pipelines:
considerable number of logistics hubs along the way. June, German newspaper Westdeutsche Allgemeine
Portugal, Spain, Croatia, Slovenia, Latvia economic corridors existing
planned or under construction According to Reuters, Alibaba has already contacted Zeitung reported that Chinese business and real estate
and Lithuania. Whereas the OBOR has
Railroad connections: property developers across the continent that have developer Starhai bought a 60,000 sqm plot close to
not been picked up at the level of national existing
Ports with Chinese engagement: assets in locations close to the railway track. the harbour in Duisburg, an important New Silk Road
discourse in countries such as Germany planned or under
construction
existing junction. The company wants to invest EUR 260 million
or France, local or regional authorities in planned or under construction Balkan Insights reports that Alibaba is to invest more
to develop a China Trade Centre Europe and create up
Duisburg, Hamburg and Lyon (Rhône-Alpes) Gas pipelines: than EUR 100 million in a logistics base near the city of
existing to 2,000 new jobs from 2020 or 2021.
have been proactive. planned or under construction
Burgas, Bulgaria, which would serve as a distribution
hub for Europe. While the New Silk Road offers only a Ongoing development of the New Silk Road is only one
longer-term return on investment, Alibaba’s move could example of economic development initiatives that could
Sources: MERICS, Savills Investment Management
pave the way for new businesses and, thus, demand for spur further demand for European logistics.
10 Note: The Asian Infrastructure Investment Bank is a multilateral development logistics facilities along the route. 11
bank that aims to support infrastructure building in the Asia-Pacific region.
European logistics:
warehousing the future
Technology-driven ACCORDING TO
consumption PROLOGIS, EACH
EUR 1 BILLION OF
ADDITIONAL ONLINE
fuelling demand for
SALES GENERATES
AROUND 77,000 SQM
OF NEW LOGISTICS
DEMAND.
modern logistics
real estate
Logistics providers are optimising their services to meet FIGURE 7: According to research by the Mintel Group, 2.8 billion packages SPOTLIGHT: AMAZONFRESH
increasingly technology-driven retail consumption, with start- SALES BY RETAIL CHANNEL, EU-28 (EUR BILLION) and parcels were delivered in the UK in 2016 and, according to
ups competing to digitalise aspects of the logistics supply Bundesverband Paket und Expresslogistik (BIEK), almost 3.2
chain from manufacturing to last-mile delivery. Booming-e- Store-based retail billion were delivered in Germany in the same period. These ■■ An increasing number of retail segments will be affected as
commerce offers excellent opportunities for growth in modern figures include business-to-business, business-to-consumer and millennials age and expect to shop when, where and how they
logistics real estate such as mega-distribution centres, smaller Online retail consumer-to-consumer deliveries. Both the Mintel Group and BIEK want, with the grocery segment leading the pack, especially in
urban facilities within city limits and click-and-collect pick-up expect further parcel delivery growth amounting to about 4.0 billion the UK. According to Savills, 4.4% of the UK grocery market
points. 4,000
in the UK and 4.2 billion in Germany through 2021 (figure 8). is online based compared to just 0.8% in Germany. But
Amazon and DHL recently teamed up to roll out AmazonFresh,
Increasing parcel shipping likely presents further growth Amazon’s nearly decade-old grocery arm, in Berlin and
Customer requirements regarding availability, choice, speed Hamburg. Munich followed suit in November 2017.
opportunity for European logistics. In particular, parcel services
and flexibility create need for additional points in the logistics 3,000 such as FedEx, UPS and DHL will increase demand for both According to Conlumino, AmazonFresh entered the European
supply chain. Prologis research found that e-commerce ■■
mega-distribution centres and urban logistics. market and introduced its services to nearly 70 London
retailers require three times more logistics space than store-
postcodes in 2016. IGD Retail Analysis recently reported that
based retailers, for example. This can be attributed to high FIGURE 8: the provider has expanded to 260 postcodes since, with the
inventory turnover, wider product range and greater need for NUMBER OF PARCEL DELIVERIES IN THE UK AND GERMANY (BILLIONS) service also available in Surrey and Hampshire.
outbound shipping space and logistics capacity for customer 2,000 ■■ The expansion of online retail is causing a rethinking of many
returns (figure 7). logistics networks, as online retailers such as AmazonFresh
seek to distinguish themselves by providing increasingly rapid
According to Prologis, each EUR 1 billion of additional online Germany delivery. Urban populations are also increasing, largely fuelled
sales generates around 77,000 sqm of new logistics demand. UK by the demographic most likely to shop online.
This translates to potential demand growth amounting to 15 1,000 4,500 ■■ Business Insider reports that Amazon is seeking 1,300
million sqm in Europe over the next five years. Furthermore, +25 small warehouse units in urban locations near major cities
4,150
e-commerce growth could mean more than 200,000 new 4,000 across Europe. This stems from the
4,000
increasing consumer demand for
logistics sector jobs across Europe. 3,500 shorter delivery times, such as the
3,340 one-hour Amazon delivery service
While overall retail turnover is expected to rise, online sales 0 3,000 3,160 that was first launched in the UK in
are forecast to grow disproportionately (figure 8). The Centre 2,960 +35 2015. While the retail giant usually
2011
2012
2013
2014
2015
2016
2017f
2018f
2,780 2,800
for Retail Research reports that the average share of Internet 2,500
2,560 operates its last-mile facilities
independently, it uses third parties
retail in Europe stood around just 8% in 2016. However, 2,000
2,020 such as DHL and UPS in areas of
Produce Business UK expects the online share to grow to high demand.
15-25% by 2030. The standardisation of same-day delivery 1,500
1,700
Sources: Oxford Economics, Ecommerce Europe, Savills Investment Management
■■ The expansion of AmazonFresh
raises the stakes for logistics providers and parcel services. Note: ‘f’ denotes forecast
may mean additional demand for
1,000
warehouses capable of cooling
500 groceries, and other urban logistics
formats. Even traditional brick-and-
0 mortar grocery retailers are launching
2012 2014 2016 2017f … 2021f online platforms, creating further
logistics demand potential.
Sources: Mintel Group, BIEK, Savills Investment Management
Note: ‘f’ denotes forecast
12 13
European logistics:
warehousing the future
Urbanisation
requires smart CITY DWELLERS ARE
GENERALLY TECH SAVVY
AND COMFORTABLE
logistics solutions
SHOPPING ONLINE,
WHICH IS DRIVING THE
NEED FOR INNOVATIVE
LAST-MILE DELIVERY
CAPABILITIES AND SMART
URBAN WAREHOUSING.
Higher-valued residential, office, retail and leisure property is The more expensive and complicated processes of last-mile
Rising urbanisation across the globe is resulting in higher city Such trends make urban logistics a winning sector for
causing scarcity of land. This is pushing land prices up and logistics are spurring growth of cross-docked distribution
population densities and changing consumer spending behaviour. European investment, particularly where Internet sales as
making it more expensive for developers to build logistics centres on the edges of towns and cities as a go-between for
Investors are therefore increasingly targeting cities rather than a proportion of total retail sales are rising (figure 9). This is
properties. Moreover, large areas of former manufacturing national and pan-regional distribution centres.
overall countries. We believe that cities that are adapting well to certainly the case in the UK, Germany, France, Sweden
and warehousing land are lost to higher-value uses every
urbanisation, highlighted in the Savills IM Dynamic Cities Index, and the Netherlands, but countries such as Spain, Italy and In particular, cross-docking facilities and parcel delivery
year, due to local authorities facilitating conversions of old
will lead the next real estate cycle.1 Poland are catching up as they reach the 5-6% threshold of centres of around 2,000-10,000 sqm in the vicinity of major
industrial buildings into residential units. AECOM reported
Internet sales. cities and conurbations will become increasingly important
1 Savills IM Dynamic Cities Index identifies 6 factors, modelled using 60 that in London, for example, roughly 1,300 hectares of former
to enable next-day, same-day or even same-hour delivery on
indicators, that make cities attractive to talent, resilient to disruptive City dwellers are generally tech savvy and comfortable industrial land was converted into other uses between 2001
selected items (figure 10). Urban distribution centres within
technology and a leader in the knowledge economy. For more analysis, shopping online, which is driving the need for innovative last- and 2015.
city limits are increasingly necessary to fulfil these promises.
visit www.dynamiccities.savillsim.com. mile delivery capabilities and smart urban warehousing, as an
Emissions are a major concern for growing cities. Due to
increasing number of parcels are delivered to an increasing Online retailers have started to include smaller urban
FIGURE 9: the need to improve air quality and limit health risks, an
number of residents in ever decreasing time windows. warehouses (facilities up to 2,500 sqm) in their network in
Online market share by country increasing number of European cities have introduced low-
FIGURE 9: order to shorten delivery routes and provide quick delivery
emission zones. Furthermore, Paris, Madrid and Athens have
(% total retail)
ONLINE MARKET SHARE BY COUNTRY
vowed to ban the use of diesel vehicles from their city centres,
services to online customers.
(% NATIONAL RETAIL)
with London pledging to prohibit petrol and diesel cars from
2040. In response, parcel servicer Deutsche Post DHL Group
EU AVERAGE UK GERMANY FRANCE SWEDEN NETHERLANDS SWITZERLAND AUSTRIA BELGIUM SPAIN POLAND ITALY
recently acquired electric vehicle manufacturer StreetScooter
to become a market leader in green logistics. This could lead
to a consolidation of operators in particular areas, driving high
20
demand for logistics space.
18%
17%
15%
15%
14%
14%
15
FIGURE 10:
12%
DHL CROSS-DOCKED FACILITY
10%
10%
10%
10%
9%
9%
9%
9%
10
8%
8%
8%
8%
8%
7%
7%
7%
7%
7%
7%
7%
7%
7%
6%
6%
6%
5%
5-6%
4%
4%
4%
4%
threshold
3%
3%
3%
3%
3%
2%
2%
0
2014 2015 2016 2017f
Sources: Centre of Retail Research, Savills Investment Management Sources: DHL, CBRE
Sources: DHL, CBRE
Note: ‘f’ denotes forecast; no 2014 data available for Austria, Belgium, the EU and Switzerland
14 15
European logistics:
warehousing the future
THE INCREASING
USE OF ROBOTS IN
Digitalisation
PRODUCTION COULD
LEAD TO A RETURN
OF MANUFACTURING
INDUSTRIES FROM
and the rise
OTHER PARTS OF THE
WORLD TO EUROPE.
of robots
Digitalisation and automation are transforming operations within available land near cities is ever more scarce. High, multilevel Digitalisation and the Internet of Things promise great The increasing use of robots in production could also lead
both warehouses and greater logistics supply chains. Manual shelves and narrower aisles enable incremental and scalable benefits for logistics operators and consumers. For example, to a return of manufacturing industries from other parts of
handling is increasingly replaced by highly efficient robots and expansion of storage. ASRS helps reduce labour costs while radio frequency identification technology is key for security, the world to Europe. As wages in Asia have been rising
other automated solutions, which help minimise defects for increasing safety. Such storage capacity is invaluable given the managing inventory, reporting, sorting, conveying and significantly since the peak of the off-shoring process in
higher levels of productivity and help reduce operating costs. volume of e-commerce orders. shipping (table 1). the 2000s, cost-saving benefits have become less clear.
Having a reliable power supply is crucial. Oil prices have been rising since then, too. Consequently,
Colliers International predicts that multistorey warehouses – The use of big data will lead to anticipatory logistics, where
various companies are considering shifting manufacturing or
In the newest generation of mega-distribution centres from already common in densely populated, land-constrained urban manufactures and retailers are able to predict customer
assembly of goods back to Europe in order to supplement
online retailers such as Amazon and Zalando, workflows centres in Asia – should become more common in Europe in needs. An example of this is Amazon seeking to anticipate its
automated production.
are turned upside down. Robots carry entire shelves and the next couple years. Indeed, they already exist in London, highest-demand goods based on user research, which can
take them to the packers, enabling operators to package Paris and Munich. However, local regulations around building inform how Amazon equips its trucks for one-hour delivery While this trend is likely to have a negative overall impact on
the shelves and, thus, store more goods in the same area. heights could impact trends in multistorey facilities. services. Other companies may conduct similar analyses and low-skilled workers in particular, reshoring and nearshoring
Additionally, distribution centre height is better utilised, and ship goods or parts to distribution centres that are closest could be positive for the European logistics sector as a
DHL research forecasts that it is not a matter of if but rather
wide aisles are no longer needed. Robot versus human to customers who are most likely to purchase particular whole. While cost was the dominating factor in supply-chain
when robots will revolutionise parcel sorting hubs, distribution
workers likewise allow enlargement of fire sections, further products. This enables faster deliveries and, thus, increases optimisation in the past, delivery speed and adaptability to
centres, last-mile facilities and delivery vans. But because
boosting space efficiency. customer satisfaction. Furthermore, an accurate prediction market trends have become almost equally important.
the current worldwide share of automated warehouses is
of demand enables lean inventory management and more
In automated storage and retrieval systems (ASRS), computer- just 5%, human labour will still be relied on to a certain extent Trends in automation could lead to demand for taller
efficient use of resources.
controlled systems automatically place and retrieve loads from for loading and unloading trucks, handling containers and buildings. One example is Amazon’s almost fully automated
defined storage locations. They are becoming increasingly manually sorting odd-sized parcels and goods. TABLE 1: distribution centres, where robots
essential to maximise space efficiency in warehouses, as INTERNET OF THINGS IN LOGISTICS operate on three floors, and a
higher amount of goods can
be stored in the same space.
TECHNOLOGY PUSH LOGISTICS SOLUTIONS
The same is true for logistics
■■ Mobile computing is growing ■■ Transparency and integrity control properties operated by an
steadily, with more mobile along the supply chain: the right
phones expected in 2020 products at the right time, place and
ASRS. Consequently, the
than people in the world. cost, and in the right quantity and need for mega-distribution
condition centres of 100,000+ sqm
■■ With the move towards 5G, ■■ Integrity control, especially for could decrease. Furthermore,
wireless communication will business customers’ sensitive goods the increasing usage of
reach a new level of maturity. robots in the workplace could Lorem ipsum dolor sit amet, consectetuer adipiscing elit, sed diam
nonummy nibh euismod tincidunt ut laoreet dolore magna aliquam
reduce the space needed
erat volutpat. Ut wisi enim ad minim veniam, quis nostrud exerci
tation ullamcorper suscipit lobortis nisl ut aliquip ex ea commodo
consequat. Duis autem vel eum iriure dolor in hendrerit in vulpu-
tate velit esse molestie consequat, vel illum dolore eu feugiat nulla
facilisis at vero eros et accumsan et iusto odio dignissim qui
blandit praesent luptatum zzril delenit augue duis dolore te
feugait nulla facilisi.
■■ Sensor technology has ■■ Detailed shipment tracking to provide
Lorem ipsum dolor sit amet, cons ectetuer adipiscing elit, sed
diam nonummy nibh euismod tincidunt ut laoreet dolore
magna aliquam erat volutpat. Ut wisi enim ad minim veniam,
quis nostrud exerci tation ullamcorper suscipit lobortis nisl ut
aliquip ex ea commodo consequat.
for staff amenities, including
Lorem ipsum dolor sit amet, consectetuer adipiscing elit,
sed diam nonummy nibh euismod tincidunt ut laoreet
dolore magna aliquam erat volutpat. Ut wisi enim ad
minim veniam, quis nostrud exerci tation ullamcorper
suscipit lobortis nisl ut aliquip ex ea commodo conse-
quat. Duis autem vel eum iriure dolor in hendrerit in
become more mature and consumers transparency in real time
vulputate velit esse molestie consequat, vel illum
dolore eu feugiat nulla facilisis at vero eros et
accumsan et iusto odio dignissim qui blandit
praesent luptatum zzril delenit augue duis
dolore te feugait nulla facilisi.
parking facilities.
Lorem ipsum dolor sit amet, cons ectetuer
affordable in the logistics
industry.
■■ Cloud computing and big ■■ Transparency of logistics networks
data technologies will enable and assets providing efficiency and
new data-based services. optimisation
Sources: DHL, Savills Investment Management
16 17
European logistics:
warehousing the future
Insights from...
Artur Mokrzycki
Head of Capital Markets
Panattoni Europe
The remuneration gap Logistics
corridors of Europe
between Western and
Eastern Europe will
remain significant and will
probably not disappear in The so-called Blue Banana is a corridor that stretches from According to bulwiengesa, the other corridor of interest –
north of London through Belgium, the Netherlands, western known as the Golden Banana – refers to a Southern European
the foreseeable future. Germany and Switzerland, ending in Milan (figure 11). This conurbation lying between Valencia, Spain, and Genoa, Italy,
corridor is home to more than 110 million people and includes along the Mediterranean coast. Since the fall of the Iron Curtain,
the most important traditional European economic centres and Eastern European economies have developed rapidly, and
logistics hubs. several new industrial and logistics corridors have emerged,
What factors are influencing European logistics We are seeing low vacancy rates and generally such as that connecting Germany’s Ruhr area with Berlin and
FIGURE 11:
markets? high take-up across Europe. Will development be Warsaw (in our view, the purple banana in figure 11), and that
INDUSTRIAL AND LOGISTICS CORRIDORS IN EUROPE
linking the Ruhr area, Leipzig and Prague.
robust enough to keep up with demand over the
Many new factors are significantly influencing Europe’s Poland is one of the most important countries for the logistics
logistics/industrial scene. Prominent trends include: 1) the
next few years?
business in Europe due to its relatively low labour costs,
expansion of online distribution, 2) the introduction of new We believe the development sector will be able to respond availability of development sites and the overall importance of
technologies such as driverless transportation and 3) the to any type of demand. However, in certain locations, limited the sector for the Polish economy.
significant (but slowly narrowing) labour cost gap between land or labour supply – or high operating costs – may force RIGA
Western and Central Europe (CE). According to PMA, in most of Europe’s key 30 logistics
present occupiers to relocate their activities from historically COPENHAGEN
BLUE BANANA markets, investible stock totals less than 5 million sqm. Only
well-established locations. New markets will emerge as
Traditional bricks-and-mortar retail distribution will shrink in the metropolitan areas of London, Madrid, Milan and Paris
increasing volumes of capital target the logistics/industrial HAMBURG
many places, replaced by e-distribution carried out using have investible stock in quantities above this threshold (table
sector in general, and many specific investment strategies LONDON HANNOVER
logistics facilities such as fulfilment or parcel distribution BERLIN
WARSAW 2). However, the traditional logistics corridors of Europe could
are already betting on this trend. RUHR LEIPZIG
centres. With new transportation technologies, shipping will BRUSSELS FRANKFURT move eastwards to meet the New Silk Road’s westward
become economically rational from distant locations. PRAGUE
reach, forming a new economic corridor. This could give rise
PARIS STUTTGART
How can logistics providers attempt to future to new economic centres and logistics hubs outside of the UK,
Some specific logistics centres (e.g., for food, pharmaceuticals VIENNA Benelux, France, Germany and Italy.
and one-hour delivery) will remain around the big urban proof in the face of rapid technological change? ZURICH
MUNICH
BUCHAREST
centres, while large hubs will be located and operated farther LYON
TABLE 2:
afield. Third-party logistics providers are operating in a rapidly MILAN MODERN LOGISTICS STOCK (SQM)
evolving supply chain environment where clients are
We expect European logistics to continue operating in expecting many novel, high-value-add services to be TIER 1 TIER 2 TIER 3 TIER 4 TIER 5
GOLDEN
a borderless, more pan-European rather than national provided with constant time and cost optimisation. MADRID BARCELONA BANANA ROME >5 million 4-5 million 2.75-4 million 2-2.75 millionEuropean logistics:
warehousing the future
Pan-European logistics:
Insights from...
occupier market
Jon Crossfield According to JLL, logistics take-up in Europe reached more per sqm per year in Copenhagen. Despite the Brexit vote in
Head of Strategic Partnerships than 19 million sqm in 2016, a new record high, despite political June, prime industrial rents in London grew by almost 3% to
uncertainty around the Brexit vote. In H1 2017, European EUR 141 per sqm per year.
Savills Investment Management industrial and logistics activity remained lively. Warehouse take-
While PMA forecasts an increase in prime headline rents for
up increased by more than 22% year on year (y/y), according to
almost all markets, it expects a marginal rental decline for
BNP Paribas Real Estate (BNPPRE). Spain and the Netherlands
London and Birmingham in 2017. As of 2018, logistics rents
recorded the highest growth rates across Europe. This can
are expected to grow across Europe (figure 12).
mainly be attributed to a positive economic recovery including
increasing exports, retail sales and consumer spending. FIGURE 12:
Therefore, JLL expects the pan-European logistics market to LOGISTICS PRIME HEADLINE RENTS (EUR PER SQM PER ANNUM)
Some tenants are even achieve another record annual take-up in 2017.
Stockholm
201 6 201 7f 201 8f
building themselves and According to BNPPRE, take-up was mainly driven by demand
from 3PL and retail tenants. JLL reports that 3PL generated Helsinki
then structuring sale and 36% of overall logistics take-up in 2016. Retail companies Dublin
ranked second with a share of 28%, followed by the
leasebacks based on ‘book manufacturing sector (17%) and online retailers (12%). Munich
cost’ so as to minimise rents While demand for new logistics facilities is high, supply is
hardly keeping pace, particularly for large units. Thus, vacancy
Birmingham
Copenhagen
rather than create profit. rates in most European countries fell further in H1 2017, and
Barcelona
despite y/y increases in supply, it did not balance out the
high levels of logistics demand (table 3). Consequently, the Frankfurt
What key characteristics are large-sized occupiers suitable labour force is key, and tenants are targeting cities or number of owner-occupier activities is on the rise, according
Manchester
seeking on the Continent? towns where this exists and where they do not have to fight with to BNPPRE.
other occupiers. Employees can often be transported in from a Hamburg
JLL estimates that the overall logistics vacancy rate in Europe
Efficiency of operations and minimising costs are increasingly large area or even across borders.
stood below 5.8% at the end of H1 2017, and it is expected Edinburgh
important, particularly for large occupiers. Tenants are aware
to decrease further: speculative developments remain limited,
of the changing investment landscape and the value of their What trends are you observing in Poland and
Unweighted Average
as new supply is expected to continue to be predominantly
lease. The fall in yields is allowing both tenants and developers
to build-to-suit at ‘low’ rents and, yet, still make a margin. The
Germany? build-to-suit in 2017. While there was 12.5 million sqm of new Dusseldorf
logistics space under construction in H1 2017, only 21% of
fall in yields and rise in build-to-suit is helping keep rental Germany remains the largest market in Europe, with the lowest
Amsterdam
this is speculative. This is why the overall vacancy rate could
growth in check in certain markets. yields and highest tenant and investor demand. The market fall to about 5.5% despite accelerating development activity. Rotterdam
is seeing strong occupational demand and an ever-evolving
Depending on use of the unit (e.g., last mile or fulfilment), TABLE 3: Warsaw
range of designs from urban cross-docking to large multilevel
location, flexibility and transport links will remain key factors. LOGISTICS VACANCY RATES ACROSS EUROPE (H1 2017)
units, as occupiers and third-party logistics providers seek to Glasgow
Labour supply, laws and cost are increasingly important and a
optimise their future strategies.
key driver – you may need 1,000-3,000 employees operating Madrid
Change Change Change
24/7 at an e-commerce fulfilment centre. Poland is an increasingly active market and increasingly seen 10% y/y Berlin
to be a cheaper logistics location from which to service both Brussels stable Hamburg stable Moscow down
Paris
What factors are shaping large-sized occupiers’ Germany and the rest of Western Europe. H&M, Zalando, Milan stable Zagreb down
geographic focus? Amazon and BMW are all examples of this trend. Key Bratislava down Budapest down Rome
attractions are: cheaper and more flexible labour supply (at Barcelona down Warsaw down
Brussels
Depending on country and type of operation, there are a circa one-third of cost), good roads and, in some locations, London stable Poznan up
number of factors shaping the decisions. The increasing need better land supply. Munich stable Birmingham up Prague
for last-mile delivery and speed of delivery will mean that being Madrid down Stockholm up
Milan
located close to the larger urban populations will remain key What is the outlook for speculative development? Lyon down Rotterdam down
for most. Planning constraints and conversion of industrial Bucharest down Gothenburg down Lyon
land to other uses are leading to supply shortages and, in High demand and limited supply mean there is an increasingly Paris down Wroclaw up Antwerp
many urban locations, are increasing rents. strong case for speculative development in certain locations Prague up
Lille
and for certain sized units. The market will respond to this, Frankfurt stable
Few sites exist for the largest occupiers close to urban locations, although we expect it to be rather cautious and not result in over Sources: JLL, Savills Investment Management Marseille
and where they do exist, it is unlikely they can compete with supply. Due to the specific nature of many of the very large units,
rents from smaller occupiers. Even in non-urban but strategic these are unlikely to be built speculatively and will remain build-
Budapest
locations with motorway access, it is not easy to build, and According to PMA, prime headline rents remained stable
to-suit. If such tenants need units, they can still be delivered in in most markets across Europe in 2016 despite increasing Lisbon
often sites will only be released on the condition that significant 9-12 months, assuming the sites and permits exist.
employment will follow. For e-commerce, the availability of demand for logistics space and a scarcity of available modern 0 20 40 60 80 100
properties. However, prime industrial rents in Dublin jumped Sources: PMA (Autumn 2017), Savills Investment Management
13% y/y to EUR 85 per sqm per year, and by 6% to EUR 74 Note: ‘f’ denotes forecast
20 21European logistics:
warehousing the future
Pan-European
logistics:
market size
and liquidity
MSCI estimates that the total size of the investable commercial According to Real Capital Analytics (RCA), the total pan- Due to the high demand for logistics properties but scarce FIGURE 15:
real estate market in Europe amounted to slightly more than European investment volume reached EUR 29.9 billion in supply, logistics yields are declining further across Europe PRIME LOGISTICS YIELDS ACROSS EUROPE (%)
EUR 2 trillion at the end of 2015. Taking the latest available 2016 and, thus, exceeded the 2015 record by 8% (figure (figure 15). According to PMA, prime logistics yields across
2016 2017f 2018f
sector breakdown into account, the size of the investable 14). The lower investment volumes in the aftermath of the Europe dropped from 7.6% on average at the end of
Budapest
industrial and logistics market amounted to about EUR 200 Brexit referendum were offset by strong transaction activity the GFC to 5.7% on average at the end of 2016 due to
Glasgow
billion in 2015 (figure 13). in Central and Eastern Europe, France, Austria, Ireland and increased investor demand for modern properties. PMA
Germany. According to RCA, more than EUR 9 billion in forecasts that prime yields will fall further, to 5.1% on average Lisbon
industrial and logistics assets changed hands in the UK in in 2019 and 2020 before slightly increasing again. Helsinki
FIGURE 13: 2016. By the end of H1 2017, more than EUR 12.6 billion had Copenhagen
INVESTABLE LOGISTICS MARKET SIZE (EUR BILLION) been transacted, of which almost 40% can be attributed to Warsaw
the UK.
Investable property market size 2015 (EUR billion, LHS) Edinburgh
Lille
Proportion of local logistics market (%, RHS)
FIGURE 14: Brussels
800 20% INVESTMENT VOLUMES ACROSS EUROPE (EUR BILLION) Antwerp
Rome
UK Germany Nordics France Netherlands CEE
600 16% Marseille
Italy Spain Austria Ireland Belgium Portugal
Barcelona
30
500 12% Prague
Lyon
25 Milan
400 14%
Madrid
Dublin
300 12% 20
Paris
Stockholm
200 10% 15 Manchester
Birmingham
100 100 10
Rotterdam
Amsterdam
Berlin
0 0 5
Munich
Nordics
Netherlands
Spain
CEE
Belgium
Austria
Ireland
Portugal
Germany
Italy
UK
Hamburg
0 Frankfurt
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
H1 2017
Dusseldorf
Sources: MSCI, Savills Investment Management London
Sources: RCA, Savills Investment Management 0 1 2 3 4 5 6 7 8
Sources: PMA (Autumn 2017), Savills Investment Management
Note: ‘f’ denotes forecast
22 23European logistics:
warehousing the future
Insights from... Insights from...
Wolfgang Schneider Daniel Hohenthanner
Real Estate Consultant Director of Investment, Germany
BNP Paribas Real Estate Savills Investment Management
The cities and locations that will Flexible and creative solutions are
prove most popular for logistics emerging to cope with supply
will not be selected merely constraints, including Amazon
based on the advantages their Prime renting some 2,200 sqm in
locations present, but also a centrally located office building
based on political decisions in Munich for logistics purposes.
regarding zoning policies.
What demand-supply trends are you observing in Who are the standout logistics occupiers in What should we expect in the yield spread to increase. The megatrend of urbanisation also presents
European logistics? the last-mile delivery space, and what type of between logistics and other commercial real estate increasing demand for residential and commercial buildings,
properties are they vying for? sectors over the next five years? which compete for the same sites and locations.
Demand is set to remain high in the medium term, and we
even expect it to intensify due to a number of factors including There are a number of occupier types that are particularly In Europe, the yield spread between office and logistics has Flexible and creative solutions are emerging to cope with supply
the improving overall economic situation in Europe, which active. Logistics service providers and dispatchers are starting varied from 140 basis points to around 215 basis points over constraints, including Amazon Prime renting some 2,200 sqm in
will have a direct impact on demand for logistics space. We to handle order picking and are generally looking for traditional the last 10 years. The corresponding gap between logistics a centrally located office building in Munich for logistics purposes.
are also seeing an ongoing trend towards outsourcing in the and flexible distribution warehouses, but are typically only and retail (high street) was even higher, between 220 basis Also in Munich, AmazonFresh is beginning to construct one of
industrial sector, which will drive demand as well. willing to sign relatively short-term leases. Retailers are among points and 305 basis points. This positive yield spread makes the first two-storey logistics buildings in Germany.
the most active potential occupiers, with increasing interest in the logistics asset class attractive, especially for investors
The most significant factor over the next few years, however, large-scale and central warehouses in strategic locations. seeking a high distribution. How can the logistics sector take advantage of
will be e-commerce. There is no doubt that e-commerce
demand will be considerably higher going forward. Recent
locations that are no longer needed for retail given
However, we are also seeing considerable interest on the part Given this continued logistics sector attractiveness, we expect
forecasts expect the share of retail picked up by e-commerce of courier, express and parcel (CEP) service providers, which that the inflow of investment capital will remain high for that
the rise in online sales?
to continue to grow, particularly in the food sector, which will are increasingly on the lookout for locations in conurbations or asset class over the next five years. Subsequently, we expect a It is conceivable that vacated big-box stores might be used
trigger extensive demand for logistics space. for smaller properties enabling direct delivery to the customer. yield gap on the lower end of the previously described spread. by e-commerce traders such as AmazonFresh. Usually, these
A good example can be seen in the growing popularity of are located close to the customer, and the corresponding
What cities do you think are set to become cross-docked facilities. We can expect to see intensified demand AmazonFresh moved to Germany this year, and infrastructure (cooling, delivery ramps) already exists.
coming from, in particular, retailers and CEP service providers.
logistics winners? e-commerce has been a primary driver of logistics
That will depend on three factors, the first being access to
demand in Germany recently. How might this affect In the context of increasing demand for urban
transport, particularly the motorway network. The second is demand for last-mile logistics space? logistics, does the higher cost base in such cities
proximity to large conurbations, and the third, availability of In 2011, market leader Deutsche Post DHL started with the offer sufficient risk-adjustment for returns?
suitable lots. In other words, the cities and locations that will nationwide roll-out of a new type of logistics property, the so-
prove most popular for logistics will not be selected merely Land prices are higher in larger conurbations than in locations
called ‘mechanised delivery bases.’ These small, standardised outside such agglomerations due to the scarcity of available
based on the advantages their locations present, but also cross-docked facilities within conurbations are designed
based on political decisions regarding zoning policies. land for logistics purposes. Hence, rental and capital values
to help bridge the last mile of the logistics supply chain in are correspondingly higher.
the context of rapidly increasingly e-commerce. Hence, a
completely new asset class has come to the market along On the other hand, central locations offer better opportunities
with increasing demand for centrally located sites. for a further increase in land prices. Subsequently, the average
distribution might be lower during the holding period, but total
With players such as Amazon Prime and AmazonFresh, return figures should be higher in such locations.
the demand for such centrally located sites will continue
24 25European logistics:
warehousing the future
Insights from...
Harry de Ferry Foster
Fund Director, The Charities Property Fund
Savills Investment Management
Regional logistics plays in
the UK include the M62
corridor from Manchester
to Hull and the M6 from
Liverpool to Warrington.
How attractive is the UK logistics sector investment Where are the UK logistics hotspots?
outlook? Are there any dark clouds on the horizon?
Drive times are crucial. You can access about 90% of the UK
Logistics is in great shape and will continue to do well, as in four hours from prime Midlands locations, so these tend
tenant and investor demand is probably stronger than it’s ever to be favoured. But you get regional plays as well, such as
been – the steady income stream is attractive. New players are the M62 corridor from Manchester to Hull and the M6 from
entering the market all the time, but one cloud on the horizon Liverpool to Warrington. There is also considerable demand
is that the speculative development tap is being turned on. in major cities from smaller, last-mile urban logistics operators
serving all the main cities and other regional cities like Bristol
There are probably less than 12 months of supply left in the and Newcastle.
pipeline, but Amazon has been taking 25% of all big sheds,
and this will end one day and supply will increase. Optimism
What type of units are most desirable in the UK?
and enthusiasm from agents is at an all-time high – everyone
thinks it is a one-way bet – and that means investors should We like buying units of roughly 5,000 to 10,000 sqm close
tread carefully to pick the right asset in case demand and, to urban centres, which developers aren’t building because
therefore, pricing soften. they are more expensive to build. There is also more demand
for these units, as there is a bigger pool of occupiers wanting
How is e-commerce shaping the logistics smaller space just as there are more small companies than
landscape? larger ones.
We can see the effect that logistics is having on the UK retail There is also a notable yield differential: larger units are bought
market. Competition between e-commerce retailers is largely at a premium because it enables big institutional investors to
dominating the field. Retailers can serve the same customers deploy significant amounts of capital. From a manufacturing
and geographic range they used to, but with, say, 200 stores perspective, we favour warehouses, as often investment in
versus 500. This underscores the shift to online retail. In the UK, machines is worth a lot more than the buildings they’re housed
we’re buying logistics over high street, but online retail spend in, and it is very costly for tenants to ever relocate.
is higher in the UK than elsewhere in Europe. Headwinds in
the retail sector equals tailwinds in logistics.
26 27You can also read
