SEGRO CEO David Sleath has done the impossible: made warehousing a sexy CRE vertical. We asked Sleath five questions about his business, the state of the market and of course, Amazon.

Bisnow: What do you consider the highest growth market in Europe and why? How can London be more competitive?

Sleath: London at the moment, purely on the basis of the rapid growth of e-commerce driving the demand from occupiers for smaller warehouses close to their final customers vs. the low supply of modern warehousing and the lack of land on which to build it. But we expect similar trends in our other European cities, such as Paris, Düsseldorf and Berlin amongst others, given the rapid growth in internet penetration and similar pressures on land supply.

Bisnow: There is great interest in the regeneration projects happening in the London Docklands, with a whole new trading hub between Europe and Asia being created. Has SEGRO positioned itself in that area or made preparations to capitalize on that opportunity?

Sleath: Last year we agreed to a landmark deal with the Greater London Authority to deliver brand-new warehouse facilities in five locations in East London. This is a major regeneration area for London. The major effort is, of course, to deliver housing to alleviate London’s housing shortage, but industrial premises bring jobs, which are also vital to the success of an area. The sites are along the A13 road, which links the North Circular Road to the M25 orbital motorway, so they are perfectly located for delivery into the regeneration area as well as into Canary Wharf and the city.

Bisnow: Describe the impact of Amazon on SEGRO, both in terms of demand and revenues.

Sleath: Amazon is a huge driver of demand for warehouse space, and it is an important customer of ours in four different countries. We are working on a number of projects with them, the largest to deliver a 1.5M SF fulfilment centre just outside Rome. But Amazon is also a disruptor of traditional retail models, which is forcing other occupiers to reconfigure their distribution networks in order to be able to compete.

Bisnow: What do you think the impact of Brexit will be on warehousing?

Sleath: At the moment, we are seeing little impact on occupier demand. Demand for warehousing is linked to economic performance and confidence, but the e-commerce revolution is a structural change which is, in our view, bigger than Brexit. Brexit will undoubtedly cause uncertainty, particularly as the shape of the exit deal becomes clearer, and this may have an impact on demand. It’s why we concentrate on owning modern properties in locations which display the strongest demand and tightest supply characteristics.

Bisnow: What projects do you have in the pipeline?

Sleath: We have a pipeline of over 30 projects across the UK and continental Europe, spanning both big-box logistics warehouses, cross-dock facilities for parcel delivery companies and smaller warehouses in or close to major urban areas. We spent over £300M on development last year and we expect to do the same, or more, in 2017, such is the level of demand. Development is a risky business, of course, so we work hard to de-risk it by agreeing to pre-lets with customers, and almost 70% of our pipeline is currently pre-let. Where we build without a customer in place, we generally assume that it will let within a year of completion. In practice, we have been letting the space much faster.