Investors Look For Inroads In Europe’s Tight Warehouse Market
Demand for industrial warehouse space is skyrocketing across Europe.
An evolving logistics sector, the rise of e-commerce, and the need for regional and last-mile delivery centers have all been driving this demand. Now, as the United Kingdom prepares for Brexit, the need for warehouse space is expected to rise even more.
“With the recent Conservative election victory in the United Kingdom, Brexit is coming, and with it more demand for European warehouse space,” said Daniel Shindleman, president of Bridgemer AG/CORFAC International. “Already, UK warehouse owners are seeing stockpiling of imported goods, and many owners expect demand for warehouse space to increase again as inventories are built up on each side of the border.”
Europe holds 10% of the world’s population, but represents 22% of the global economy. Median disposable income is increasing across the region, but it is rising fastest in countries like Romania and Bulgaria, where economic growth opportunities are the greatest. Shindleman said that these demographics add up to a strong consumer base to drive e-commerce and other demand for warehoused goods.
“Rents have increased rapidly across Europe as vacancy rates fall as low as 4% in some markets,” Shindleman said. “Even with some uncertainties, such as the potential for a regional or global recession, causing market anxiety, long-term trends indicate a reshaping of the warehouse market that creates an opportunity for industrial investors.”
Shindleman added that one of those trends is the advancement of the global logistics sector. Most of the world’s largest logistics companies are based in Europe, which is also home to eight of the top 10 countries for trade logistics performance, according to the World Bank. Several European countries, including Germany, Sweden and Switzerland, also rank as having the highest-quality infrastructure in the world.
The European Union Commission estimates that the transport sector is working to cut the cost of distribution by up to 50% by reducing administrative burdens associated with cross-border distribution and improving logistics infrastructure. The Trans-European Transport Network infrastructure plan provides financial support for transport, energy and digital infrastructure.
This focus on improving supply-chain logistics is driven by the emergence of e-commerce. The impact of this worldwide trend is especially profound in Europe, where online purchases are growing annually by double digits. In the past year, 85% of people in Denmark, Switzerland and the U.K. have shopped online.
A key challenge for e-commerce sellers and shippers is finding warehouse space close enough to consumers that products can be delivered in a matter of hours. This emphasis on last-mile delivery requires distribution space at the center of major population centers, which is particularly hard to find in centuries-old European cities with very few existing infill warehouses.
HWBC/CORFAC International Dublin Division Director Emma Murphy said that sourcing industrial space in Dublin is increasingly challenging.
“The main issue facing the sector is the lack of availability arising from an absence of new construction,” she said. “While the overall vacancy rate is at 3.6%, the traditional Dublin industrial area of the southwest corridor stands at only 1.1%.”
Murphy added that the challenge of finding suitable warehouse space is exacerbated by the inconsistent quality of data in some markets, as well as by differences in lease structures from country to country. To understand local dynamics, outside investors need to work with advisers with in-depth local market experience.
“As the warehouse sector in Europe and around the world is transformed by e-commerce, real estate service providers must combine local expertise with a Rolodex of international contacts to secure deals for their clients in an increasingly competitive sector,” Murphy said.
Shindleman said that at Bridgemer, which is based in Wollerau, Switzerland, his team is handling an increasing amount of international business. Swiss manufacturing and distribution clients often need help finding and negotiating warehouse space in other countries. As a member of the CORFAC International global network, Shindleman said that Bridgemer is able to tap partners throughout Europe, North America, South America and Asia to help its clients meet their goals.
Other CORFAC affiliates are also handling more cross-border transactions. Bradford Commercial Real Estate Service/CORFAC International, with offices in Fort Worth and Dallas, has been sourcing warehousing and other investment opportunities for investors based in Mexico City in markets such as Dallas.
“We have achieved great tenancies and well-above-market occupancy for our Mexico City-based clients, who have invested in the 400K SF Merit Tower in Dallas,” said Joe Santaularia, vice president of Bradford Commercial Real Estate/CORFAC International. “Investors are showing a great appetite for cross-border transactions, and with the help of our CORFAC network, we can introduce foreign investors to new American markets.”
This feature was produced in collaboration between Bisnow Branded Content and CORFAC International. Bisnow news staff was not involved in the production of this content.