E-commerce now accounts for about 9% of the retail market in Central European countries such as Germany or Italy. Consequently, we’re seeing the logistics industry there experience a strong growth as warehousing demand (particularly sites between 50,000 and 100,000sqm) skyrocket. An interesting emerging trend is more reliance on tech as operators look to optimise their supply chain with data management and delivery efficiency, especially since logistic yields are already very low (around 2-3%).
This was the subject of a session at Europe GRI 2019, where over 450 of the world’s most senior names in real estate gather for candid, closed door discussions where all are encouraged to speak freely. One of the points debated during the session was how real estate was going to keep up with e-commerce, especially as land prices rise and land availability around cities becomes more competitive. Can profitable and sensible projects really be built fast enough to meet demand from Amazon?
One problem we’re seeing across countries that Amazon operates in is that land around cities is becoming more expensive, and cannot be built as quickly as Amazon’s demand needs. Furthermore, is that the warehouses are very specifically designed for the online retailer and if they decide to pack up and leave after a 10 year lease would leave the building in a difficult situation - to the point of favouring demolition costs over repurposing costs.
A real estate investment CEO operating in Italy described his own personal experience in the climate. In Milano, he said, developers and landlords are worried about the tens of thousands of square metres of warehousing that Amazon occupies. The cap rate is still at an all-time low (~4%) so a lot of supply is still needed, but what will happen when this changes?
It is true that logistics has experienced a tremendous development, but having to follow the same growth curve as e-commerce is proving to be understandably difficult. It’s all down to costs. Last mile logistics is a big part of this, which obviously focusing on location is going to take up a lot of cash in land costs. Technology is key for success in the industry, as the data management and navigation software has made Amazon in the 2010’s 4 times more efficient than what Tesco Dotcom was in the 2000’s. It remains to be seen how logistics can further employ PropTech as drones, AI and big data are pegged to take over the market in the next 10 years.
For more information on the current logistics, warehousing and light industrial market, GRI Light Industrial and Logistics 2019 takes place on the 6-7 Novmeber in Amsterdam.
Article by Matt Harris