The 'Amazon effect' and real estate: The demand for logistical land soars

This article was written and published in Spanish and has been translated into English via Google Translate. Click here to read the original article.

The traditional ugly duckling of the real estate market, the logistics sector, is in full boil. The figures for investment and absorption of square meters have been breaking records for two years driven by the economic recovery, the growth of consumption and the 'boom' of e-commerce. Last year, the hiring of logistics space stood at the door of two million square meters including, in addition to the most powerful markets of Madrid and Barcelona, ​​cities such as Valencia, Zaragoza, Seville, and Malaga.

Only in the capital of Spain, according to data from CBRE and Knight Frank, the recruitment was above 900,000 square meters, reaching a new record and being the axis A-2 the main protagonist with 459,000 meters of recruitment. Catalonia, meanwhile, exceeded 650,000 meters, with a significant increase of 41% over the figure recorded in the previous year and being, in addition, the second best figure since 2008.

"Something is changing in the world of real estate investment After several years of undisputed dominance of the corporate and residential sectors, industrial and logistics, which between 2008 and 2014 seemed to have stagnated definitively, has positioned itself as the preferred among investors ", says Alberto Larrazabal, national director of Industrial and Logistics of CBRE Spain.

"Today, companies and brands no longer compete with each other: their supply chains compete," says this expert who highlights the lack of product that meets the new needs of demand. "Not only do the investments increase, but the portfolio that is demanded is changing its typology remarkably, although traditionally the XXL and cross-docking ships attracted most of the investment, now all eyes are on a new one. type of ship, smaller and located in the center of the cities."

This type of assets receives a very specific name in the jargon of the sector. They are known as PDU, or Platforms of Urban Distribution, which, according to CBRE, in the coming months will radically change the focus of the investment towards them.

"We are experiencing two very different situations in this market: on the one hand, the traditional logistics of the hand of great retailers such as El Corte Inglés or Mercadona, which need large stores outside the big cities, and on the other hand, the companies dedicated to e-commerce, with double-digit growth," explains Xavier Budet, logistics director of La Sirena.

According to a recent market study by Zetes, the leading companies in the e-commerce market take just 20 minutes to prepare orders and guarantee a complete delivery on the first attempt, which gives an idea of ​​the enormous competition around this type of operators "The Amazon effect is undeniable and has created the need to reduce the delivery times of the products as much as possible, which is driving the search for spaces in the center of the cities to be as close as possible to the customer," adds Budet.

Precisely, Amazon has been one of the great drivers of this incipient logistics revolution in the center of cities. Since October 2016, its premium customers in Barcelona and 26 nearby municipalities have been guaranteed the delivery, in less than two hours, of 200,000 references. Its center of operations to achieve it is the building of the old publishing house Gustavo Gili, in the Eixample.

"Platforms like Amazon Prime, which manage to deliver products purchased online in three, two and even one hour, are feeding a consumer society that wants the product it has bought as soon as possible. We have become immediate buyers and the rental of premises and distribution centers in large cities allow it, I can not be 15 or 20 kilometers from the center of Madrid if I want to deliver fresh products," says Josep María Catalá, professor of Economics and Business Studies at the UOC who remembers how even Companies that are present in large commercial areas just outside of cities such as IKEA, Decathlon or Leroy Merlin are looking for proximity to the customer.

No product inside and outside the city

Both outside and within cities, the big problem, as recognized by the experts, is the huge shortage of product adapted to the new needs of the market.

"In Madrid, for example, new products have hardly been built since 2013, in such a way that existing warehouses are quite obsolete, which has led, on the one hand, to the proliferation of the product at risk that they seek and find a tenant when the works are in progress. about to end up with the traditional key in hand and, secondly, that demand, in the case of Madrid, has sought other locations, for example, although the A-2 is the logistic reference area in the capital, that usually concentrates between 60-70% of the contracting, last year, the highway of Andalusia concentrated a good part of that demand, with almost 40% of the total contracting, being Illescas and Getafe two of the main poles of attraction," explains Larrazabal.

Opinion shared by Jorge Sena, partner and director of the commercial area of ​​Knight Frank, who adds that "operators are betting on ships of new construction since much of the existing product is obsolete in terms of height, dimensions, robotization... The ships built ten or fifteen years ago are not worth."

The companies want to take the product they have bought to the customer at the lowest cost and as quickly as possible to build loyalty.

Far more pronounced is the shortage of storage areas in the center of cities since, traditionally, logistics has always been located in the outskirts and the prices of rents for commercial premises or warehouses are hardly bearable due to the logistical activity The demand for space, on the other hand, does not stop growing.

"Companies want to take the product they have bought to the customer at the lowest cost and as quickly as possible, in this way they can build customer loyalty, retain it," explains Budet. To give us an idea, according to Zetes, urban consolidation centers can save companies 25% of the cost of each delivery and 45% of mileage. In addition, according to the calculations made, the last mile represents at least 30% of the costs of the delivery process, so in cities with a high population density, it is estimated that with the modality of night deliveries could be made double of deliveries and reduce costs by up to 50%.

And for this, the storage centers in the center of the city, the aforementioned PDUs are calve. "Both the demand for agility of the new online consumer, who wants to have their products in less than 24 hours, and the urban restrictions for the circulation of large transport vehicles during the day," says Begoña Crespo, corporate director of asset services industrial & logistics of CBRE.

PDU, Click and Collect, lockers ...

But how do they work? As explained by the consultant, these are small platforms capable of absorbing considerable volumes of 'stock' at night, and from which they can make deliveries throughout the city throughout the day, thus covering the logistical needs of the call last Mille. The spaces dedicated specifically to this type of logistics are still scarce, but experts see great potential in this sector that will attract a large part of the investment in the near future.

"There are stores that have 2,000, 5,000, 7,000 square meters that can dedicate part of their spaces to online distribution, instead of determining that this 'stock' is destined only to a specific store," says Óscar García Marín, director of Retail Intelligence of CBRE Spain, "and in fact there are great brands that are already doing it."

In the heat of this future demand, the first investment vehicles have already begun to emerge - like the one set up by CBRE Global Investor and Azora - to locate these logistics platforms in the center of the cities, such as old disused premises, old supermarkets or gyms located in secondary streets.

These PDUs also add other types of spaces that are becoming essential in online shopping such as fast collection points, whether they are Click and Collect ticketing systems, Drive Thru, or any similar collection option in the center. the cities or even within the shopping centers, which will imply a change in the current design of the spaces of the shopping centers to adapt to this new logistical need, not only for the end customer, but also to offer storage spaces, so that retailers can offer this same service to their customers, according to CBRE.

Without forgetting, according to CBRE, the proliferation of platforms within the urban area will also be driven by the new needs of the reverse logistics that e-commerce has caused, with the massive returns of items that may arrive damaged, in poor condition, from wrong way or that, simply, they are no longer desired.

"Normally, to deal with this phenomenon, we have resorted to hiring external operators, but the phenomenon of collaboration with local businesses is becoming more and more frequent in order to establish return points, which function as inverse PDUs. these allow to cheapen the growing inverse logistics caused by e-commerce, a costly process for operators that until now had no impact on the price perceived by the customer, but which is increasingly difficult for companies to assume, "says Carlos Cuevas, director of Investment Properties Industrial & Logistics of CBRE Spain.

Investment record

The logistical boom has also been felt in the volumes of investment that in 2018 moved around 1,500 million euros, very close to the figures reached a year earlier thanks to the push of e-commerce as an engine of interest of the international operators to invest in this sector. Companies like Amazon in Seville or Mercadona in Getafe have reinforced their logistics with the opening of new centers; while in Toledo there are two keys in hand of 36,000 square meters each leased by Airbus and Seur, both located in Illescas, the rent of a key in hand of 40,000 meters in Yebes by the company Mediapost, and another key in hand of 80,000 meters by an operator related to the e-commerce sector, also in Toledo.

As has happened in other segments -hotelery, shopping centers, residential rental ...- in the final figure of investment has had an important weight the purchase of assets of the portfolios of Axiare, Neinver and Lar which has meant close to the 50% of the total investment made, so you can see the great importance of the portfolios in the sector. Precisely, one of the most talked about operations was the purchase of the portfolio of Neinver by Blackstone for 300 million: 55 logistics assets and 162,000 square meters of land for industrial use.

The English Court revives the 'Operation Batman': puts on sale its logistic portfolio by 200M

R. UGALDE

The mall giant has reactivated a part of the plan that commissioned Morgan Stanley and has asked for offers for February to those interested in buying regional logistics.

And, although Madrid and Barcelona still monopolize 80% of the contracted square meters, the truth is that there have been other cities where good levels of activity have been recorded such as Valencia, Seville and Zaragoza. According to CBRE, the first two with 233,600 and 63,800 square meters respectively registered a slight increase compared to 2017, while Zaragoza achieved a much higher contract with 81,000 meters compared to 25,000 the previous year. Malaga for its part registered only 5,800 meters, almost equaling the figure reached in 2017.

"Logistics has been the star market and during the last two years there has been an unusual activity," says Jorge Sena. "Revenues, however, are rising slowly as operators go to the cent so that costs do not shoot up," and highlights the existence of "much movement 'off market', of undefined sellers that, in principle, do not have thought to sell, but they decide to do it because someone puts on the table a figure that meets their expectations."

Internet sales grew at an annual rate of 27.2% and already moved 21,800 million in Spain.

In terms of profitability, both from Knight Frank and from CBRE point towards an understanding of yields, hoping to achieve returns of around 5% during 2019. Profits in Madrid and Barcelona, ​​both at 5.25%, they are located in the European market below Brussels (5.50%), at the level of Dublin, and close to those reached in London (5%), Paris (4.75) or Frankfurt (4.5%). And above 3.75% in prime offices.

For now, the wind blows in favor of the logistics sector and, although it will be difficult to repeat the volumes of 2018, according to Larrazabal, this expert believes that there continues to be a huge appetite on the part of national and international investors. The data linked to online commerce and sales have an upward trend. According to data from the National Commission of Markets and Competition (CNMC), internet sales grew at an annual rate of 27.2% and already moved 21,800 million euros in Spain. The market, however, needs to prepare for this because, in the opinion of Catalá, "if the growth of online shopping keeps pace with the last few years, we will reach a point where there will not be enough urban space and a collapse will occur. of the orders," alerts.

This article was written and published in Spanish and has been translated into English via Google Translate. Click here to read the original article.

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