Spurred by e-commerce, Panattoni Europe has cemented its position at the top of PropertyEU’s annual Top Logistics Developers ranking, followed by Goodman and Prologis.
Panattoni Europe has consolidated its position at the head of PropertyEU’s logistics developer ranking based on warehouse space delivered between 2015 and 2017. The Warsaw-based company completed 3.8 million m2 of warehouses over the three-year period, representing a 41% increase on last year’s total of 2.7 million m2. This figure is dwarfed, however, by the projects scheduled until the end of 2020, which add up to a gargantuan 13.1 million m2. ‘The deals are much larger than in the past, so our volumes are much larger too, and e-commerce generates much more need for space than traditional retail,’ explains Robert Dobrzycki, CEO of Panattoni Europe. ‘Also, because of improvements in infrastructure in the places where we’re extremely active, like Central Europe, retailers are consolidating under one roof, creating huge big boxes and opportunities for us to develop these boxes. Tenant requirements are just much bigger now than in the past, and I mean much bigger. The volumes are huge.’
Panattoni’s order pipeline bears this perception out: two mega-warehouses in Radzymin and Czestochowa, both in Poland and due to be finished by 2020, will have a total floor space of 300,000 m2 and 320,000 m2 respectively. The company has also announced its first UK development since taking over Warwick-based First Industrial last year, with a massive 334,500 m2 scheme in the West Midlands. Such large-scale developments have been made possible by technological advances such as the use of robotics in warehouses, says Dobrzycki. ‘We’re delivering a three-storey building in Szczecin in northern Poland and we are under construction with a four-storey building in Sosnowiec in southern Poland. It’s a pioneering type of transaction: you need to look at these deals in a different way because they are not like the buildings of the past, which were 100,000-120,000 m2 ground floor facilities. And in terms of construction it’s a completely different story.’
Developing for Amazon
Panattoni dethroned Goodman at the top of the ranking last year, largely by taking over as Amazon’s developer of choice in the pivotal CEE region. The Sydney-based developer has hardly been idle, however: it completed 3.4 million m2 of new facilities in the last three years, up 51% compared to 2014-2016. Like Panattoni, Goodman is prioritising the strategically located markets of Germany and Poland, as well as making inroads into the UK, where there is a squeeze for warehouse space in southern and Midland locations such as Coventry, Andover and the Medway towns.
Goodman has a healthy pipeline of 2.6 million m2 over the next three years and remains an authentic pan-European player, though the bulk of its activity is concentrated in France, Germany, the UK and Poland. Early in 2018 the company completed its largest ever logistics facility, a 235,000 m2 hub comprising a pair of warehouses in Marl, Germany, for the giant wholesale and cash & carry operator Metro Group. The project was a consolidation of seven existing warehouses to create more efficient storage facilities and shorten transport routes.
Like other developers, Goodman has seen demand grow rapidly in the last few years in terms of both size and complexity. ‘Two or three years ago we thought of e-commerce as just big box fulfilment centres, but the terminology has become a lot wider,’ says marketing director Cedric Hanon. ‘It’s also the last-mile delivery hubs – smaller buildings of less than 10,000 m2 close to city centres – it’s customer return centres, and it’s fulfilment centres with multi-level mezzanines. It’s a wide range of buildings and that’s what you see in our pipeline.’
Third place in our rankings is once again taken by US logistics specialist Prologis, which grew its construction volume by 24.5% to 2.6 million m2 over the three-year period. The high demand for warehouse space across Europe is reflected in the fact that the company last year reported unprecedented occupancy rates of 96.5% across the 12 countries where it operates. Prologis has been reshaping its portfolio in the first quarter of 2018, selling a batch of 21 warehouses in five countries to Ares Management, while it is also concentrating on build-to-suit facilities such as a 53,500 m2 scheme in Barcelona for Logiters and an extra 37,000 m2 for Dutch online retailer Coolblue at Prologis Park Tilburg in the Netherlands.
Further down the table the demand for more sophisticated warehouses has created opportunities for companies such as Verdion and Logistics Capital Partners (see box), who can level the playing field by offering high-spec, technologically advanced facilities. Last-mile developments are another growth area, though these tend to be more legally complex because of the more stringent planning process in urban areas and so favour the big developers. Panattoni recently announced plans to invest €1.2 bn in its City Logistics projects in its four main markets, starting with four parks in Poland with a total value of €65 mln. ‘It takes a bit more time, it’s much more intensive management-wise, but the volumes are there, although they don’t contribute as much in square metres as the big distribution centres,’ says Dobrzycki.
The only cloud on the horizon is the challenge of sourcing enough skilled labour to keep up with demand. The next generation of distribution centres will be increasingly dependent on robotics and wireless technology, but this means they will need a new fleet of technicians to build, operate and maintain them. As Dobrzycki notes: ‘E-commerce consumes much more labour than regular warehousing, so we need to adjust how we look at locations and try to analyse where the labour is when planning our next projects.’
Thanks to the growth from e-commerce, all but one of the top eight developers in our survey reported an increase of 25% or more in the total surface area of projects completed over the last three years, when compared to the previous survey. And the pipeline figures indicate that this trend is set to accelerate over the next few years.
As in previous years, Poland was the most active market, with 3.8 billion m2 of projects completed since 2015 by respondents to our survey. Germany took second place with 2.5 billion m2, followed by the UK on 1.7 billion m2. The top three is the same for pipeline projects, but the 9.6 billion m2 earmarked for developments in Poland puts it streets ahead of Germany (2.8 billion m2) and the UK (1.6 billion m2).
LCP challenges ‘big boys’ in Europe
One ambitious developer that has successfully challenged the major players in the last few years is London-based Logistics Capital Partners. Established in 2015 by James Markby, former head of CBRE’s European industrial and logistics investment team, and ex-Goodman commercial director Kristof Verstraeten, the company completed a 100,000 m2 warehouse in Vercelli, Italy, last year for Amazon, and has a similar project in development at Torrazza, along the prime A4 logistics corridor near Turin.
PropertyEU’s top developers survey shows that LCP has completed 164,000 m2 of developments since its foundation, but that figure is set to increase substantially as it works through its pipeline: in 2019 alone it is due to sign off on more than 400,000 m2 of warehouse space. The company has established itself in a short time as a developer of high-spec buildings to meet the increasingly sophisticated demands of modern distribution firms.
‘We’re a commercial privately owned team, so we can be quite flexible in how we structure our deals,’ says Markby. ‘We’re not a generalist fund management team in that the team is predominantly made up of engineers, so we can not only source land but work through a whole project on the feasibility side. That’s much harder and riskier for fund management groups – they don’t typically have those types of skills in house.’
The Torrazza project, a multi-storey fulfilment centre with 147,000 m2 of floor space which is due to be completed later this year and has been pre-let to Amazon, is a case in point. ‘We’re one of a very small group that has been awarded a building of that kind of size and complexity and next-generation fulfilment,’ says Markby. He also cites Campus A58, a speculative redevelopment of the former Philips Lighting site in Roosendaal, Netherlands, close to the 56,000 m2 Primark warehouse that was LCP’s maiden project. ‘It’s a brownfield site on a spec land play that we made in 2016 when the market hadn’t woken up to the same degree. We spent a year working with the old manufacturer, monitoring and helping them clear and demolish and prepare the site. It’ll be one of the largest pre-lets in the Netherlands at 130,000 m2.’
Markby says the rapid growth of the e-commerce sector will continue to fuel demand for years to come, and his company is well placed to look beyond the ‘low-hanging fruit’ to capture more technically demanding projects. ‘Whatever your view is of where we are in the capital market cycle, there is a continuing growing occupier need and demand for newer, larger, taller, more sophisticated buildings that require more people to work in them, and that will drive the demand for new supply.’
PROFILES TOP 3 DEVELOPERS
Panattoni in the lead for 2nd year running
Panattoni Europe has cemented its position at the top of PropertyEU’s annual ranking of logistics developers with another busy year. The European arm of California-based Panattoni Development Company is heavily active in Poland, Germany and the Czech Republic, three countries at the crossroads of Europe that together put it in a strong position for both eastern and western markets. Like its rivals, Panattoni has seen the pace of development pick up considerably in recent years; the volume of completed projects increased by 41% in the last 12 months when measured on a three-year basis. But what really stands out is the pipeline for the coming period: in 2019 alone Panattoni has a colossal 6.5 million m2 scheduled for completion, half of the total planned for the next three years, including six mega-warehouses of 250,000 m2 or larger.
Zalando spurs Goodman in Germany and Poland
Sydney-based Goodman Group has had to settle for runner-up spot in PropertyEU’s rankings for the second year in a row, but it has seen substantial growth in its development volume, completing 3.42 million m2 in the three years to end-2017 compared to 2.26 million m2 in the previous three-year period, a 51% increase. German e-tailer Zalando has established itself as Goodman’s biggest European customer in the last few years, commissioning warehouses of over 100,000 m2 in Lahr, Germany and Szczecin, Poland, with another in Gluchow, near Lodz, due to be completed in 2018. The company has also just completed its biggest-ever project, a 235,000 m2 dual warehouse facility for Metro Group in Mahl, western Germany. Other pipeline projects include a series of speculative developments in the UK, including Lyons Park in Coventry, Kingsnorth Commercial Park in Kent and Bedford Commercial Park, to meet the strong demand for Grade A industrial space in the south-east and West Midlands regions of England.
Prologis streamlines European portfolio
US giant Prologis consolidated its third place in PropertyEU’s rankings, completing a total of 2.6 million m2 of warehouse development over the three-year period. The total volume increased by a robust 24.5% over the last 12 months and the company remains an authentic pan-European player, with 104 major developments (5,000 m2 plus) spanning 12 countries from Sweden to Slovakia. Prologis has been clearing its books in the first half of 2018, selling a portfolio of 21 assets across five European countries to alternative asset manager Ares and is close to completing a €100 mln-plus deal for the Sapphire portfolio comprising five German warehouses. In a further act of streamlining, it combined its two European investment vehicles in December 2017 into a single open-ended fund worth €8.2 bn, which received an A- credit rating from S&P.