At this time of year, I spend a lot of time on the road. Since SEGRO’s results in February, I have been all around Europe and the UK. I always enjoy visiting assets and hearing the views from customers, agents, investors and SEGRO’s local property teams.
So I feel well placed to tell EG readers about the mood in the logistics world, about attitudes towards e-commerce in Europe, and about the UK’s great debate of this decade: the in-out referendum on European Union membership.
So what is the mood of the logistics sector in Europe? The answer is “buoyant”.
According to the Office for National Statistics, Britain leads the way in European e-commerce. Figures released last autumn show that 79% of UK individuals made purchases online in 2014. This was followed closely by Denmark (78%), Norway (77%) and Sweden (75%), but the potential for e-commerce growth in Europe’s main economic powerhouses is plain to see.
In 2014, only 22% of Italians made purchases online, with the figure at 34% in Poland, 37% in Spain, 62% in France and 70% in Germany.
According to research from JLL, one result of this shift is that capital is originating from outside Europe and pouring into logistics, accounting for 33% of total investment across Europe in 2015.
This demand is also reflected in the statistic that, although overall investment across Europe in Q1 was down by 16% from Q1 2015, according to CBRE, investment in industrial property leapt by 57%.
So the e-commerce revolution is gaining momentum, prompting global occupiers such as Amazon to accelerate the roll out of its model, its delivery partners to rush to build networks and traditional retailers to attempt to catch up.
Big, centrally located order fulfilment and bulk storage warehouses close to local labour pools, where the picking and packing are done, are becoming the norm, supplemented by a network of “last mile”, cross-docked delivery facilities located close to the customer.
Land available for such distribution space is in short supply. We’ve seen this already in key locations such as the UK Midlands and inside the M25. But it is the same on the continent. Take Barcelona – a busy, bustling city surrounded by sea on one side and mountains on the other, where land is scarce and planning laws are strict.
Internet retailers and other local delivery companies there cannot find the land they need to build the facilities to meet the needs of the consumer, who wants same-day, sometimes four-hour delivery of goods ordered online.
It is the same in Munich, Frankfurt and Düsseldorf as well as Paris and Lyon. Even in Poland, where land is plentiful, the new populist government is introducing its “Agriculture Act”, which restricts the amount of land for development. But the prospect of land shortages leading to an increase in rents is music to my ears!
Talking of which, I was delighted to join my colleagues in Warsaw last month as we marked SEGRO’s 10th year in central and eastern Europe.
In those 10 years SEGRO has grown from nothing to a portfolio of 13m sq ft valued at almost €1bn (£773m), stretching from Gdańsk to Gliwice, Poznań to Prague. It is an incredible story helped, no doubt, by Poland’s economic success since it joined the EU in 2004.
Most of the people I met on my travels, especially in central Europe, are puzzled about why the UK would contemplate leaving the EU and ask me what SEGRO’S position would be if the UK were to vote in favour of Brexit on 23 June.
My response? As a long-term international investor, we place our capital in the markets where we believe the risk-adjusted returns will be most attractive and will continue to thrive whether the UK is in or out of the EU.
As it happens, the longer-term, underlying structural drivers of demand for logistics property, such as the e-commerce revolution and urbanisation, are likely to be much more important factors than any short-term economic gyrations caused by Brexit fears.
David Sleath is chief executive at SEGRO
