MAGAZINE: Bulking up to meet the online challenge

Led by Panattoni, the top six firms in PropertyEU’s annual logistics developers ranking are unchanged from last year, with e-commerce a major driver of growth.

Three years of robust economic growth have left their mark on the portfolios of Europe’s leading logistics developers. Hundreds of thousands – in some cases millions – of square metres of manufacturing, storage and distribution space have been added to the industrial landscape as developers scramble to meet the demands posed by expanding economies and, above all, the continued e-commerce boom.

Warsaw-based Panattoni Europe continues to lead the pack with a huge footprint in Poland, Germany and the Czech Republic. Between 2016 and 2018, the European arm of US logistics developer Panattoni completed 5.2 million m2 of warehouse space, up nearly 37% on the previous three-year period, putting it at the top of PropertyEU’s annual ranking of logistics developers for the third year in a row.

The top six players are all unchanged from last year, and with the exception of Belgium’s WDP, all delivered well in excess of 1 million m2 of warehouse space over the three-year period. Heavyweights Panattoni, Goodman and Prologis – the numbers 1, 2 and 3 in our ranking – all ventured well above the 2 million m2 mark. Fifth-placed Central European developer CTP Invest booked the strongest growth of the top six players, expanding from close to 772,000 m2 of completed space last year to well over one million m2 in the 2019 ranking, an increase of 48%.  

CTP, which specialises in building high-tech industrial parks across Central and Eastern Europe, added further to its CTPark Network, the largest integrated business park system in the region. It comprises over 4.5 million m2 of properties, many offering a mix of manufacturing and logistics space, in more than 82 locations. Last year CTP added Serbia to its operating territory which also includes the Czech Republic, Poland, Hungary and Slovakia.

Sydney-based Goodman maintained its second place this year despite seeing its volume of delivered warehouses in Europe slip by close to 6%. Further down the ranking, Belgium’s WDP booked a healthy 45% increase in completed projects, while Verdion, ECE and LCP all posted modest rises. Gazeley, which was acquired by Asia’s biggest warehouse operator GLP in 2017, also delivered slightly less warehouse space over the three-year period but with €4 bn of funds to deploy in Europe is hunting for opportunities to expand (see interview with managing director for northern Europe, Ingo Steves).  

The bulging pipelines of the top six developers reflect ambitious future plans. After Panattoni, which is in a league of its own with a colossal 23.6 million m2 of space planned for the next three years, the other five all have plans for 2.5-3.5 million m2 of new warehouses across Europe, both giant sheds and smaller last-mile facilities.

E-commerce boom
The main driver fuelling this growth is the burgeoning e-commerce market, which continues to expand at annual average rates of 12-14% in Europe. ‘We’re just at the beginning of the story in terms of e-commerce growth,’ says Robert Dobrzycki, CEO of Panattoni Europe. His company’s mammoth pipeline has been built with this explosive growth in mind. ‘We anticipate huge growth in e-commerce so we have to be prepared. We need to be ahead of the market,’ he adds.

E-commerce players require three times more space than traditional retailers due to the need to house a greater variety for products,  larger buffer stocks, and for the processing of returned goods (see box). In addition, e-commerce requires more labour than regular warehousing and this has prompted Panattoni to expand geographically to access regions where labour is readily available. ‘We’ve added new markets like the UK but we’ve also added new locations in markets where we have been active for a long time like Poland and Germany,’ says Dobrzycki.

E-commerce customers account for over a third (35%) of Panattoni’s warehouse completions between 2016 and 2018 and cover the whole spectrum from fashion to books and bikes. E-tailing giant Amazon is a major customer, for which it has developed 685,500 m2 of custom-made facilites to date, including four schemes in Poland as well as a facility near Prague in the Czech Republic. A sixth, 45,000 m2 warehouse in Lodz, Poland is on the way.

US heavyweight Prologis is another to benefit from the warehouse gold rush and says its portfolio ‘has never been in better shape’. In the fourth quarter of 2018, the company started 12 new developments in the Czech Republic, France, Italy, the Netherlands, Slovakia and the UK totalling 287,783 m2. Of this, 31.1% was build-to-suit and 68.9% was speculative.

For full-year 2018, Prologis started 15 build-to-suit and 22 speculative projects with a combined total of 918,076 m2, of which 47.6% is pre-leased. ‘Demand is healthy, and we finalised our multi-year disposition programme ahead of schedule, redeploying those proceeds into development,’ said Ben Bannatyne, president of Prologis Europe.

Funding the pipeline
UK REIT Segro, which ranks fourth in our table of completed projects and third in terms of planned developments, announced a £450 mln (€510 mln) capital raise in February to fund its pipeline. ‘Since 2016, we have deployed over £1.5 bn into development across the UK and Continental Europe which has generated a cumulative capital value uplift of over 20% and £90 mln of new annualised headline rent,’ said David Sleath, chief executive of Segro. ‘Occupier and investment market conditions remain supportive and we continue to experience strong demand for new warehousing,’ Sleath added.

As of 31 December 2018, Segro had 827,700 m2 of development projects approved, contracted or under construction. The company’s total development pipeline (both current and future) amounts to 3.4 million m2. Current projects include three warehouses for data centre operators on the Slough Trading Estate, a 17,000 m2 urban warehouse near Heathrow Airport, and over 45,000 m2 of new speculatively-built warehouses in Düsseldorf, Berlin and Frankfurt.

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