Logistics real estate: why rents are rising in European and Canadian markets

From Romania to Canada, via Central Europe, Germany and France, logistics real estate professionals all reach the same conclusion: the imbalance between supply and demand for logistics real estate is unlikely to be resolved anytime soon. They discussed the causes of this problem, its consequences for rents and possible remedies at an international conference organized by Afilog on Wednesday, March 15, at MIPIM in Cannes.

The geopolitical context was on everyone's lips at MIPIM. The war in Ukraine, Sino-American tensions and rising commodity prices were cited as factors reinforcing an underlying trend that began at the start of the COVID-19 crisis: the transformation of supply chains toward greater resilience, reflected in two complementary phenomena. On the one hand, increased inventories, which mechanically translate into a greater need for storage; and on the other, the emergence of decoupling and onshoring, meaning the relocation or duplication of certain activities to avoid dependence on certain markets (China, Russia).

This is compounded by a structural change in demand for logistics real estate, driven by the rise of e-commerce, “which requires three times more land area than physical retail,” says Cécile Tricaut, Prologis’ Southern Europe Director. These needs are resulting in very strong market momentum across all European countries in terms of space development: “Across the European market as a whole, we are seeing an increase in logistics space of around 7% per year,” notes Damien Soler, Group Key Account Manager at BMI Logistics, a specialist in roofing solutions for logistics and industrial buildings. However, this increase is too limited to meet demand, leading to higher rents and extremely low vacancy rates.

The reason: land scarcity and growing environmental concerns, which are leading local authorities to question the validity of warehouse developments. This view is shared by all the speakers. “The Romanian market is catching up with Western Europe, both in terms of land issues and rising rents,” notes Ana Dumitrache, CEO Romania for the CTP Group, for example. “Rents have more than doubled over the past two years and now stand at €4.5/m2.”

The same is true on the other side of the Atlantic. “For at least three years, vacancy has hovered below the 2% mark; despite rent increases of around 40%, average prices now stand at $18/square foot/year (or €20.55 for 0.09 m2 per year),” reveals Ted Willcocks of Canadian group Triovest. To address local authorities’ concerns regarding land, water and energy management, developers must now offer new solutions. 

“In dense urban environments, roofs can reuse rainwater and grow plants to improve air quality,” cites Damien Soler of BMI as an example. In Canada, “the market for two-story warehouses is taking hold,” says Ted Willcocks. In Romania, logistics real estate is being incorporated into mixed-use business parks, alongside medical centers and training institutes, for example.

In addition to finding technical solutions, logistics real estate stakeholders must persuade people: “For a long time, we were content to highlight the jobs created by our activities and the tax revenues they generated for the local community. That is no longer enough.”  explains Cécile Tricault. Thomas Steinmuller, Afilog’s representative for Central Europe, agrees: “We must demonstrate that logistics warehouses are not merely buildings; they are infrastructure essential to the economies and even the ecology of the countries in which they are located.”

One solution being put forward is transparency. “Warehouses are often viewed as simple sheds,” observes Cécile Tricault. Remove the fences around warehouses and open your doors. Whenever we bring the public inside, perceptions change. It opens people’s eyes. ” The Logistics Week organized by Afilog in France has already demonstrated this twice. The initiative will continue with immersive video tours, launched by Afilog and due to be released this summer!