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The warehousing together with the logistics industry has seen a drastic spike in the demand during a last couple of years and this demand is here to stay for at least a few more years until it is saturated.
The growth and its dimensions in Europe are very different compared to other parts of the world.
Industrial real estate has a higher demand and lower average vacancy at present. It is one industry which is under-supplied and has over-demand, rising rents for the storage spaces and good returns to the investors is the proof.
Even though the availability of large vacant spaces is very low the rents have not increased much. This could be attributed to the increased number of investors in real estate. The major occupier of the space has been the eCommerce business, taking about 70% of the vacant space.
The eCommerce has taken a huge chunk of market share from the traditional street market and has led the traditional street businesses to invest in their online market. Limited space availability in the city centers has prompted the investors to pour in billions of euros into the industrial real estate, which in turn has set a stage for long term development plan.
To add to the already existing competition the investors from Asia-Pacific and North America are showing keen interest and more so from social wealth fund institutions. The Koreans, Chinese and Japanese are investing more than ever into the industrial real estate and are making record-breaking deals.
It is very well known that western Europe has huge population settlement thus traditionally attracting more manufacturing and servicing industries to the area but the real estate investors are purchasing properties in lesser-known countries as they have a notion of tapping into the potential of these countries.
Thus, the CEE countries have experienced heavy investments by very large players as everyone is buying more space or developing their existing industrial storage space. Bulgaria, Hungary, Slovakia, Czech, Republic, Poland and Romania are expected to see close to a 5% increase in the demand until the year 2022.
The demand for the vacant storage space is about to grow at more than a million square meters every year. Polish and Romanian markets are growing at a staggering rate with the demand almost doubling every year for which suppliers of the industrial goods also have responded by supplying enough raw materials.
Germany being the geographic center of Europe boasts the area’s largest logistic industry with a large presence of firms like DHL-Deutsche Post, Deutsche Bahn apart from the multinational firms.
The demand for the warehousing in Deutschland has remained constantly strong even through the COVID-19 pandemic mostly due to the boom in eCommerce and migration of people away from street shopping.
However, Hamburg which is considered as the logistics hub of the country because of the international port might see uncertainty in growth due to stricter import and export rules, expensive construction combined with complex federal regulations in setting up the warehousing facilities.
Poland is the benefiter of this situation as it is a much cheaper option and not too far away from Germany. The country is acting as a gateway to Europe for trade from China due to its position in ‘Belt and Road Initiative’.
On the other hand, the Netherlands has continued its dominance in logistics, thanks to its high-quality infrastructure coupled with the skilled labour force. The four-city cluster which comprises of ports and Schiphol airport is the busiest route in Europe hence making it the center of logistic activities.
Ireland’s capital Dublin is not lagging in the race as it is closing in on a major deal with the eCommerce giant Amazon to provide warehouse space and is building more facilities speculating more growth in the coming years.
France, Spain and Italy have robust warehousing set up with the strong transporting infrastructure especially, high-speed railways and high-class road networks. The growth has slowed down due to the pandemic, but the future looks bright as the investors are bracing for the post-pandemic business.
The market is also consolidated in a way since most of the major players have tried and expanded their holdings keeping in view the requirements for the Amazon kind of businesses.
The Major players like CTP, Prologis and P3 have completed major acquisitions in the major European markets and are on their way to increase the vacancy for the ever-increasing demand. The developers are also looking to make the places energy-efficient as the cost of energy and operations go up-to 25-33%, also giving importance to the environment.
With the boom in e-commerce, the 3PL providers or the direct service providers are willing to take up spaces which are near to the cities or the transportation hub for the necessity of last-mile connectivity, but the development pattern of the city also has to be taken into account and many experts believe that this balance pays off high dividends.
Major players are also investing in the city centers of highly dense metropolitans with the view of making multi- story facilities so that they can achieve last-mile connectivity.
The Political scenario due to Brexit has not shown much impact on the business in Europe and would be too soon to predict too.
Contradictorily there has been an improvement in the businesses in CEE countries due to the ease of reaching the countries of Western Europe. There could also be a risk of recession, increased cost of equipment and raw materials as most of it is being imported, shortage of manpower for the construction can also be another possible situation.
The warehousing in Europe and North America is highly technology-oriented, the number of facilities provided in warehouses is higher and varied compared to that in Asia. The warehouses are managed by AGV (automated guided vehicles), the property leasers are looking for quick responding and efficient centers of distribution which consume less space and can be operated with least manpower.
To put it in a nutshell, the sector will see growth for at least a few more years and then saturate, thus taking out the chance of incurring losses.
The demand would be there for years to come but there should not be expectations of high returns immediately as this business is operated on small net margin since the skilled workforce required for construction and maintenance eats up major share of the lease earned. The patience would be key in case of returns from the investments into warehousing.