Steady as she goes Noella Pio Kivlehan reports on the widespread talk of market recovery at the third annual EG European Industrial & Distribution Summit
“We are in a very different world,” Estates Gazette editor Damian Wild told the 160 delegates at the opening of the 2009 EG European Industrial & Distribution Summit. Speaking at the Grand Hotel Krasnapolsky, Amsterdam, Wild said that while it was a different world, “it is not all doom and gloom in the market. It has become clear in the past few weeks that there are opportunities out there.”
A succession of keynote speakers and panellists gave the audience of agents, developers, occupiers and investors a detailed overview of their sector and the issues affecting it, both now and in the future.
Setting the scene was the first speaker, Nick Axford, head of EMEA research and consulting at CB Richard Ellis. “There is a fascination about the world around us. This is a seminal moment in global economics,” said Axford, adding that there was concern about talking about “green shoots” in the economy.
“But we are seeing the first signs of interest in the sector,” he added, “and there are stirrings in the investment market – prime yields are shifting.” Axford said it was important that the market as a whole thought about “the bigger picture”.
“Sexy” sector
The economy was firmly on the minds of other speakers on the first day. Will Rowson, chief investment officer at ING REIM Europe, said the shed industry was “now seen as sexy”. In his presentation, he pointed out that occupier demand in logistics real estate was closely related to economic activity and structural trends in trade volumes, consumer and retail spending, industrial production, and outsourcing of logistics activities.
Helping the market, said Rowson, was the fact that world trade volume levels were now equal to those in 2006. He said that while drivers of logistics had been hit badly over the previous year, “they have rebounded during Q3 2009”. There has been an increased focus on flexibility: flexible locations (multi-modal) and warehouses, and industrial real estate should remain an attractive property class for an institutional investor, due to its defensive characteristics, especially the very high income return.
“There are indications that the initial yield peak has been reached in Europe, led by the UK, while the next 12 to 18 months will provide opportunities for investors as yields have moved beyond fair value,” said Rowson. He concluded that investors should focus on prime logistics hubs along major transport corridors which have access to key markets, while the core western European ones remain important.
Differing opinion
Chris Holmes, managing director, structured real estate securitisation at Unicredit Markets & Investment Banking, told delegates: “I am probably the one who is going to pour cold water on the talk of green shoots.” The reason, said Holmes, was that the well of money present from 2003 to 2007 “turned out to be a well of debt”. But, he added: “You can see at the back end of this year more property coming to the market if the market continues to stabilise, but I don’t want to use the phrase ‘green shoots’.”
See below for a round-up of the conference, which was sponsored by CB Richard Ellis, BNP Paribas Real Estates, GSE and Savills.
Day 1: Securing short-term strategies in industrial property: current thinking in investment and lending
Starting day two of the summit was a BNP Paribas Real Estate breakfast session, which examined the “Growth area across Europe: New uses for sheds and opportunities from waste.”
This was chaired by Kevin Mofid, logistics research analyst, BNP Paribas Real Estate, with a panel that included Iain Macpherson, regional estates manager, Biffa; Ranjit Gill, director, industrial agency, BNP Paribas Real Estate and Tony Watkins, managing director, Cyclamax Resource Parks.
Environmental issues were top of the agenda when it came to saving costs for the occupier.
Among other things, Rowe championed solar panels on ProLogis’s buildings. He said the company was “rendering a portion of the new solar installation in five rooftops in Barcelona, Spain. The rest will be installed in three rooftops at ProLogis Park Alcala in Madrid.”
For Hodgins, solar thermal was also important to his business, but one of the main cost-saving areas for his company was Intellegent Lighting. “It makes the biggest contribution to reducing costs,” he said, “and the savings for us are really quite large by reducing energy by 70%. CO2 is reduced by 230 tonnes per annum. Overall, it was an investment of ¤13.1m.” Hodgins said that he had one simple rule: “If you can’t measure it, you can’t manage it.”
In terms of rental costs, Beaumont said: “That has slipped down people’s agenda. The cost of occupying the building is the most important thing.”
The panel first debated the differences between “industrial” and “logistics”.
“We talk about them as one sector, but we are talking about two distinct classes,” said Richardson, adding: “They are motivated by different sets of drivers. The focus is on the logistics sector.”
Reiskin said his company was looking at the stability of cash flow. “The investor is interested; they just can’t get the money,” he said. “For the likes of the institutional investor, it takes a lot of work.”
When asked about the difference between investing in the UK and investing in Europe, Rowson said: “The investment community ignores the differences between the two. The likes of SEGRO come over to Europe and try to play the same game that they have done in the UK. But the UK and Europe are very different.”
Assembling land
Hughes pointed out that assembling land was very difficult. “There are a number of things that restrict it, certainly from an acquisition point of view,” he said. “Take a location such as Turkey – there you have to deal with an unsophisticated banking system.”
But, he added: “2010 will be a year of fantastic opportunities. And there will be structural changes in the way deals are done. The fact is, people still need new warehouses.”
Rowson said: “You can see more fair value in logistics – more than offices and retail – and as long as the market is open for us, then we will keep investing.”
Meanwhile, Richardson said his company kept generally positive across all markets: “It’s a case of ‘steady as she goes’,” he said. “2010 will be a correction back to fair values for the best types of property.”
Panellists
Matt Richardson, head of research, European Real Investments, Fidelity Int
Mike Hughes, exec director, Helios Properties
Will Rowson, chief inv officer, ING REIM Europe
Chris Holmes, md, Structured RE Securitisation, Unicredit Markets & Investment BankingRob Reiskin, head of investments, AEW Europe
Day 1: Development horizons: where will the next opportunities be?
Dunne said ProLogis was thinking about where the next sites will be. He said: “Airports and ports will come on stream, and we need to be thinking about where our customers need to be, because they are taking long-term contracts. We also need to go back to core markets.”
He added: “There are markets that are undersupplied – countries like Germany, Holland and Belgium, where I can see the opportunity to develop speculatively. When? 2012 is as good a bet as any.
“The bubble we have experienced meant that land was constrained and it took up to five years to bring a scheme forward. As a result, secondary markets were easier. The bubble was pushing us out, and rents have been impacted. We are all out there in the market doing the best we can.
“[Development] will be on a case-by-case basis. The reality is land prices need to readjust completely to make the economics work.”
Van den Berg believed that tenants would be more cautious in the months and years ahead. “The rental level between top locations is relatively small,” he said. “We have to show the tenants that there is a real difference in quality of the sites.”
Day 1: European distribution routes: key hubs and efficient logistics networks
Debating the benefits of network infrastructures such as air freight, rail and port, and the environmental aspects of each, Osinga said: “We are lucky – we have the Port of Rotterdam and Schiphol so there is a lot of integration between sea and airfreight and that gives us an advantage [in the global stakes].”
He also pointed out that the airport had room for expansion of its cargo terminals.
Meij agreed that Schiphol had an advantage, but he argued that “other European countries will try to catch up. Heathrow is certainly one that will.”
Proffitt said new development was widely needed. He told the audience that it was often easier to develop in controlled economies. “As you go around the world, certainly in the Far East and Middle East, optimism is key and vision is always easier in controlled economies,” he said.
Red tape
He added: “For example, in Dubai, the ruling sheikh can decide that all the buildings should be sustainable. But, once you get into a democracy, you have all the red tape.”
Folmer added that his company had “very high ambitions in terms of green”.
On the subject of tracking goods for customers, Proffitt said that the global supply chain suffered from lack of visibility and companies still struggled with traceability. “It’s been on the agenda forever,” he said. “There are still big issues there, as the clients want to know everything is going right.”
Panellists
Michael Proffitt, independent consultant
Enno D Osinga, senior vice-president, cargo, Schiphol
Henk Folmer, senior vice-president, customer development Europe, AMB Property, Europe
Onno Meij, group director operations, CEVA Logistics
Day 2: Saving costs for occupiers
Starting day two of the summit was a BNP Paribas Real Estate breakfast session, which examined the “Growth area across Europe: New uses for sheds and opportunities from waste.”
This was chaired by Kevin Mofid, logisitcs research analyst, BNP Paribas Real Estate, with a panel that included Iain Macpherson, regional estates manager, Biffa; Ranjit Gill, director, industrial agency, BNP Paribas Real Estate and Tony Watkins, managing director, Cyclamax Resource Parks.
Environmental issues were top of the aagenda when it came to saving costs for the occupier.
Among other things, Roew championed solar panels on ProLogis’s buildings. He said the company was “rendering a portion of the new solar installation in five rooftops in Barcelona, Spain. The rest will be installed in three rooftops at ProLogis Park Alcala in Madrid.”
For Hodgins, solar thermal was also important to his business, but one of the main cost-saving areas for his compant was intelligent Lighting.
“It makes the biggeest contribution to reducing costs,” he said, “and the savings for us are really quite large by reducing energy by 70%. CO2 is reduced by 230 tonnes per annum. Overall, it was an investment of €13.1m” Hodgens said that he had one simple rule: “”If you can’t measure it, you can’t manage it.”
In terms of rental costs, Beaumont said: “That has slipped down people’s agenda. The cost of occupying the building is the most important thing.”
Day 2: Occupiers panel
The occupiers’ panel, featuring some of Europe’s leading companies, gathered to give their thoughts on key issues affecting them, such as supply chains and the trend towards globalisation.
Focusing on the relationship between landlord and tenant, Whyman said companies had to look at what each could bring to the relationship, and added that good communication was important for business. “The more open you can be with your partners, the better,” he said. “One of the challenges we find when we do surveys is that a lack of innovation is what comes through.”
Betts said that the recipe for disaster with those you are in partnership with was “if you take a defensive approach. But you have to change that dynamic, and focus on what adds value.”
Forward-thinking
Meanwhile, Nichols believed that “the partner that is going to be best for us is the one who is forward- thinking. As with any situation, you don’t have a proper relationship if you have a subservient partner. Ultimately, we are measured on cost – we are not going to be going for long-term contracts. You should keep moving on and have short-term contracts.”
Asked whether landlords were meeting occupiers halfway in their needs, Nichols said there were some locations where his company was receiving flexibility – commonly in the shared user environment. He said: “Where we have got a big fixed asset is where we have the problems.”
Panellists
Session chair Remko Van Hoek, chief procurement officer, Cofely (Netherlands)
Simon Nichols, supply chain development, Nestlé Purina Petcare Europe
Tim Betts, senior consultant, Bisham Consultancy
Steve Whyman, founder, WeComply
Day 2: Industry spotlight: the retail sector
Putting a spotlight on where retailers have grown their markets, Holberton said there was an ongoing process of globalisation of international brands. “Nearly all the retailers have some presence outside their domestic market,” he said. “But in less mature markets the representation has become thin.”
Meanwhile, Sullivan told the conference that while the internet was firmly here – and here to stay – “it will only grow slowly. Shopping is still a leisure activity. There’s a lot of work to be done before online retailing can become slick.”
On the subject of the future use of warehouses, Sullivan said there is now evidence of ‘changeable sheds’ – those blurring the lines between leisure and retail use. “It’s about them being able to move from one use to another so that they don’t have to be demolished,” he said. “There is a lot of leisure applications that can be used.”
Holberton agreed: “They would work maybe in more imaginative markets where consumer demand is under threat. If you look at Disney, it’s more or less a shopping centre with a few rides scattered about.”
So where are the future opportunities? Holberton said: “Certainly, from a retailer context, central Europe and southern Europe are good opportunities – but it’s more for the units to trade from.”
