Logistics giant Prologis enjoyed a strong end to 2019 and the president of its European operations predicts demand will remain healthy this year.
The global logistics specialist has issued its earnings report for last year, revealing that 538,000 m2 was developed in the fourth quarter - out of close to 1 million m2 for the whole of 2019 - comprising 48.6% built-to-suit properties in key logistics markets.
Overall, the European portfolio comprises 18 million m2, after the company acquired 47 buildings with a total net rentable area of 984,000 m2 and 27 land plots totalling 2.3 million m2.
Prologis also sold six buildings with a combined total of 146,000 m2 and five land parcels of 234,000 m2. Overall, it developed nearly 1 million m2 in 2019.
Customer sentiment grew more cautious near year-end, the report noted, due to supply shortages, political uncertainty such as Brexit, and lagging economic performance.
Prologis assets saw occupancy dip slightly to 96.9%, down from 2018’s historic high of 98%, a factor the company ascribed to its focus on driving rental growth. Market rents grew by 5.1% in 2019, with Hungary, Poland, Sweden and the UK showing the most robust rent change.
Driving demand for big box warehouses in 2019 was retail and online commerce, trends which are expected to continue setting the weather this year. In contrast, the automotive sector in the UK shows signs of weakening.
Speculative activity also increased, in part due to limited opportunities for existing product in capital markets, which pushed investors to development. Last year, 19 of the firm’s 40 new developments were speculative.
Talking to PropertyEU, Ben Bannatyne, president of Prologis for Europe, said: ‘This year should be very similar to 2019, with continuing strong levels of demand. Logistics in general is outpacing GDP and our sector is growing fast, driven by ecommerce and consumption.
‘Ecommerce needs a lot more space than traditional retail so that’s a huge benefit for logistics. We believe there’s big growth potential for ecommerce in Europe. There’s not a single market we're not looking at investing more in. We are continuing to look to both develop and acquire more standing product which is income-producing. The balance may change market to market, but our strategy will remain the same.’
On the issue of rising speculative development across the sector, Bannatyne was sanguine, while emphasising the need for caution.
‘We’re in a very different place today with speculative development, than in 2006-07,’ he said.
‘Yes, the British Midlands is a softer area with a lot more speculative space, and so is Bratislava, Madrid and Poland. But none of this is coming from demand, it’s more from supply coming into the market that can be absorbed. It’s a small part of the picture.
‘Our occupancy is 96.9% - granted that is slightly down on last year, but we’ve been pushing rents much harder, so are accepting of some vacancy over 2019. To give our competitors credit, the majority of them are remaining vigilant, so we don’t see a big likelihood of big oversupply.’
Winning popular support for big box developments will be a continuing issue for the sector this year, especially as consumer shopping habits change.
‘It’s becoming increasingly hard to buy land and then have it zoned and permitted for big boxes. In urban areas this is mainly because people don’t want a warehouse next to their home, or for environmental reasons,’ he said.
So how does Prologis overcome residents’ doubts?
‘We’ve spent a lot of time with local communities and government explaining why logistics is necessary and why it makes sense because if you want a thriving economy, then logistics is just an essential part of that.
‘We make our buildings attractive, and we develop green space, all to create a nice park environment. Across Europe we are rolling out our “PARKlife” programme, which focuses on three key areas – buildings, people and communities, made possible thanks to the scale we have.
‘We take ESG seriously as well as workplace improvement, making them inviting and comfortable places to work, as our customers tell us that concerns around labour are their biggest pain point.’