World view: The global economy dominated the second Estates Gazette European Industrial & Distribution summit, held in Hamburg on 15-16 October. In the grand setting of the Atlantic Kempinski Hotel, more than 150 delegates heard from a series of keynote speakers, introduced by EG editor Peter Bill. Noella Pio Kivlehan reports
Opening the conference, Estates Gazette editor Peter Bill set the tone. “At the moment the talk is about the political and economic situation,” he said. “We need a fix in these volatile times, and I think it’s going to get worse before it gets better. But life goes on pretty much as it did before.”
The keynote address was given by John Berry, principal administrator at the European Commisson, who discussed the European Union’s logistics action plan on e-freight, truck weights and dimensions, and the realities of sustainable mobility.
Road safety
Berry also discussed the EU’s conclusions on a European energy strategy for transport, published in May 2007, which predicted that road safety would improve.
However, he added: “All transport policies from the EU, and probably elsewhere, were formulated when fuel costs were not the great motivator, and [when] ‘green equals gold’ represented perhaps good housekeeping – not a mantra for industry’s economic viability.”
In his address, Dr Holger Schmieding, chief economist at the Bank of America, warned that the UK and the rest of continental Europe is entering certain recession. This, he said, would last until at least June next year, and industry in Europe would suffer as much as the financial sector.
Dr Schmieding predicted that the UK and Ireland will have a limited recovery. Other European countries will fare better, he said, particularly Germany, which will “shine through” due to pent-up consumer demand. “Recession is inevitable,” he added, “but I believe there will be recovery for Europe next spring. It will be uneven, but it will happen.”
In his speech, Christian Giesemann, head of research at King Sturge Deutschland, spoke about investment in the markets during the current downturn.
He said that investment volume for European logistics properties declined by almost 40% in H1 2008 to ¤4.5bn, and that the European logistics markets face changing demands because of, among other factors, rising energy and transportation costs.
Completing the opening addresses was Dr Dieter Rebitzer, professor in finance and investment for the department of real estate at the business economic and environment university, Nürtingen-Geislingen.
Expansion
Professor Rebitzer spoke of the “emerging (East) versus traditional locations (West)”, and predicted that extensive expansion would occur around core European areas such as Madrid and Hamburg-Oresund.
Professor Rebitzer added that the industry would see more developmental activity around what he described as “the emerging Eastern European sunbelt of the Black Sea of Kiew, Odessa, Istanbul and Sofia”.
The following four pages give a round-up of the conference, which was sponsored by Gazeley, King Sturge, DTZ and SEGRO.
The developers’ perspectives
The conference panel discussed a number of points. Key among them were the cost of constructing new buildings and the relationship between this cost and land values.
Panel members said that the picture regarding construction costs is complicated by a number of factors, not least the current economic crisis.
There was great concern about liquidity in the market, with panellists warning that banks are taking money but failing to put it back into industry.
They agreed that it was important from everyone’s point of view for confidence to return to the market.
“Tough markets make us and our customers look at how we do our business, and they create change,” said Nigel Rowe, senior vice-president for global services Europe at ProLogis.
Andy Gulliford, director of logistics at SEGRO, said that economically the “continuing movement east” of developmental activity is important.
“The economic structure of Europe and the trans-European network provide opportunity for us,” he said. “There’s an urbanisation of logistics in the right industrial market. We see opportunities in upsizing because of the number of consolidations and the rise of e-tailing.”
A glimmer of hope for the future was offered by Mo Barzegar, managing director of AMB Europe, who predicted that the industry will come through the crisis, just as it has done with every other crisis in the past.
“We are focusing on our balance sheet and so far we have not seen a lot of distressed selling,” he said.
“We are seeing local and regional developers who cannot hang on to their development we can step in to help them. It’s good. It is positive from my perspective.”
Green issues and sustainability also came under the panellists’ spotlight. All said they were focused on the green agenda and that, despite the current economic problems, it was important to consider and act on environmental issues.
Transport and logistics: trends across Europe: part 1 – ports
The panel discussed: emerging transport patterns occupier perspectives recent trends in multimodal transport growth prospects port side the investor’s view on port-side investment and port-rail interface.
Jürgen Sorgenfrei, chairman of the marketing board, Hamburg Port Authority:
“China is starting to make us nervous. The country’s inflation rate is much higher than the officially published figure. Between 2007 and 2008, it increased dramatically – to 8% in the first quarter seems realistic – while as many as 8,000 companies have disappeared. And we have had a lot of cargo stopped. During the Olympic Games, China accused us of having dangerous cargo, but we were only carrying mineral water. The macro problems are not good.”
Nick Orbell, general manager, real estate development, Hutchison Ports (UK):
“More or fewer sheds around ports? Yes, we do need more but, although they are suitable for some industries, they are not for others. Sheds work at ports if you can get economic advantages, cash flow and bond performances, and if you have customers who bring in high volume. However, in the UK, a lot of mainstream retailers do not want to be on port because it’s too far from distribution.”
Julian Skelnik, chairman of the Baltic Ports Organisation and marketing director, PROXY Port of Gdansk:
“I do agree that there is certainly a need for sheds in the port, but not in the terminal. We should have another port area that they should be able to go into.”
The panel looked at: changing distribution patterns cross-Europe road network developments road use by occupiers and logistics operations the dynamic of road versus rail infrastructure developments the European rail project occupier perspectives on freight travel and distribution from nodes to end-users.
Lord Tony Berkeley, chairman, Rail Freight Group:
“Rail will bring reduced carbon emissions and other green benefits, but only if it performs efficiently and competitively – with itself and with the road. That means persuading the European Commission and member states to complete the implementation of the First Railway Package to enable full competition, transparency and open access, and independent regulation, among others. After all, road freight is liberalised and has open access. Why not rail?”
Thomas Westphal, MD business development, Wincanton, Germany:
“We have our own network in Germany. This is important, but not many people know this. We have to talk about intermodal and how we can get an intelligent solution for it. We have to increase our infrastructure and we need multi-rail space.”
Stephen Harley, director, materials and logistics, Ford of Europe:
“The automotive sector is feeling the pinch – it’s a depression. We did have a very good half-year, but the customers are not buying cars at the moment because they have to borrow money to do that, and they are not able to do so. On the transport side, we already run exclusive rail services – one is between Turkey and Cologne. As for the future, what we need to do is realise that logistics is not rewarded by the car buyer we need to improve efficiencies and reduce costs, and we also need to keep working on innovative solutions.”
Among the issues discussed by the five panellists were: distribution strategies emerging hubs new significant markets and the impact of regional location decisions.
Panel members talked at length on matters associated with the global supply chain. They highlighted the importance of dynamic/migratory sourcing and the inherent risks in supply chain complexities.
The panel also debated on global materials management (manufacturers), as well as the emergence of supply chain commanders and global supply chain enablers such as DHL, Schenker, K&N, Ceva, UPS and NYK Logistics. It concluded that the increasing power of retailers is having an effect on distribution.
The impact of higher oil prices
Examined by the four experts were: the potential impact on sourcing and the warehouse network the trade-off between transport and warehouse costs the total landed costs and the hidden costs of global sourcing.
Jon Sleeman, partner, industrial and logistics research, King Sturge
“We will see more regional sourcing, and that will be good for certain European markets. If transport costs become more significant, then people will be more sensitive about location and they will be sensitive about going into secondary, peripheral locations. Companies may also look more closely at energy-saving warehouses.”
Thomas Karmann, managing director, Europe, Gazeley
“We have experienced different impacts from rising oil prices – an increase in interest for our sustainability agenda and a decrease in the average size of sites for the warehouses we are building. Building size has reduced from 29,000m2 to 23,000m2, while the 100,000m2 buildings have all but now disappeared from the market.”
Les Beaumont, project director, Total Logistics
“Companies are collaborating on the use of transport and warehousing to improve asset utilisation and reduce costs. This works when they have a similar customer base, opposing peaks on year, week or day, and product synergy – similar or opposite profiles. In distribution sites, it increases the need for marshalling areas and may require more flexibility of the internal space and needs design for cross-docking.”
Simon Lloyd, joint head, EMEA European Industrial Logistics, DTZ
“Against a background of occupier leases being for five years or less, investors and developers had to treat additional costs of sustainability as their investment in the future.”
Forecasting investing strategies
The panel talked about: where they are investing who is buying what and where the effect of market conditions on demand, price and vacancy rates and the impact of higher fuel costs on logistics players.
Peter Schuijlenburg, VP and general manager for Germany, AMB Europe
“We still have a strong focus on ports and airports. People are talking the market down, but we see positive signs yields are expanding in a number of markets but there is a shift towards quality. Nobody wants to buy in a falling market so it is natural that investors are keeping their money. But we also feel that now is the time to step into locations. We get a lot of demand from potential tenants desperate to secure warehouse space.”
Ines Reinmann, European chief operating officer, SEGRO
“The steps governments have taken to repair the economy are going to take at least 12 months to work. But we are still facing big demands in some countries. People are still asking for warehouses, particularly in central Europe.”
Uwe Schoessow, managing director and head of asset management and development, Valad, Germany
“There will be a stable market for warehouse and office space with competitive prices, while stable rents will exceed ERVs. But I believe that tenants will become more picky with regard to needing time for decision-making and requesting more rent-free periods. I also see demand focused on big conurbations such as Hamburg, Dusseldorf, Frankfurt, Munich, Stuttgart and Berlin.”
Thierry De Wever, portfolio manager, European industrial fund and logistic property fund Europe, ING Real Estates Investment, France
“Higher fuel costs will place more importance on rail and inland waterways. But, in the short to medium term, the road will continue to gain in importance. The long-term challenge is to combine slow and cheap transport modes (rail, inland waterways, short sea) with fast and expensive transport modes (road).”
The logistical future
Debated by the panel were the who, what, where and why of the industrial sector.
Douglas Kent, member of the European leadership team of the Supply Chain Council”I believe China or India will soon become the number one English-speaking country in the world, and globalisation affects the supply chain. Macro factors such as oil price volatility, the shift of power towards the East, green laws, the impact of currency dynamics and outsourcing trends will cause you or your customers to ‘rethink globalisation’.”
John Berry, principal administrator, European Commission”The commission is again trying to establish new TEN-T priorities and those priorities will want to include funding infrastructure. However, again the commission could face reluctance from member states that do not see any direct benefit for themselves, especially so in these difficult and money-scarce times.e_SDRq
Walter Hens, group business development director, SEGRO
“Why should this cycle be short? It lasted four years in the 1980s and three in 2001.”
Doug Johannson, senior VP, Giffels Management Russia
“Russia is experiencing a retail revolution but the existing infrastructure is very poor, and this is resulting in unreliable deliveries.”
Hope as a strategy for a gloomy outlook
During a gala dinner at the Atlantic Kempinski Hotel, speaker Rohit Talwar, CEO of Fast Future, gave a gloomy picture of the state of the global economy. No one really knows the full extent of the world’s financial problems, he said. “Confidence has completely disappeared and the government doesn’t really understand what is happening.”
Talwar asked delegates whether they wanted to be realistic or optimistic, and warned that the crisis will last longer than anyone is prepared to admit.
“Do you guys want to hear it’s going to turn bad and it’s going to be bad for the next seven years? Or do you want to hear that it’s going to be bad just until the middle of next year? Or is Gordon Brown providing the intellectual solution? Hope has been the prime strategy. I don’t see any strategy from the government.”
