Logistics, a force for transforming regions from Brazil to France

Pedro Moreira: Brazil’s real estate market is continuing its growth cycle, with its stock increasing by 17% in 2022, representing an additional 23.2 million sq. m. E-commerce was the sector that leased the most space over the period.

Although e-commerce was also the main driver of geographical expansion into other regions of this vast country (8.5 million sq. km), we are now seeing activity concentrated in the Southeast region (the states of São Paulo, Rio de Janeiro, Minas Gerais and Espírito Santo), which accounts for 80% of the stock, or 18.4 million sq. m. To give an idea of this concentration, the State of São Paulo alone totaled 12.8 million sq. m at the end of 2022, or 55% of Brazil’s warehouse stock.

A large share of warehouse developments are located near major cities and metropolitan regions, such as São Paulo, within a 30 km radius of the state capital in question.  

Moreover, logistics facilities located near these metropolitan areas—also known as last-mile warehouses—have single-digit vacancy rates. Even in these areas, there is no more space available for lease. Nationwide, the vacancy rate stood at 11% at the end of 2022.

We are seeing logistics hubs gain momentum in secondary cities such as Campinas, Bauru and Ribeirão Preto, a trend that is also contributing to this decentralization.

Claude Samson: The vacancy rate in Brazil’s logistics stock would be the envy of every French and European player, at a time when it fell below 3% in Europe during 2023.

We are going through an unusual period marked by very limited immediate availability of space, unprecedented rent increases and more restricted access to debt. Investment in the first quarter of 2022 fell by 75% compared with the same period in 2022.

The historic Lille–Paris–Lyon–Marseille corridor continues to attract users and investors, but some secondary locations (the Atlantic coast, Nouvelle-Aquitaine, etc.) are also sought after because they benefit from positive demographic momentum.

Pedro Moreira: Urban logistics remains one of our greatest challenges. The expansion of e-commerce has made it more complex. Urban logistics still relies heavily on warehouses, which are generally large and located near metropolitan areas such as São Paulo. The lack of mini-hubs within these cities makes urban logistics and delivery lead times even more complex.

Nevertheless, we can welcome the fact that the real estate sector is working to increase the availability of mini-hubs in these major cities, by acquiring former properties and factories, then redeveloping and adapting them for storage, cross-docking and last-mile operations.

This solution is effective in improving the urban logistics model in cities such as São Paulo, which face aggravating factors such as highly complex traffic, congested areas and traffic restrictions for large vehicles. It is also essential for optimizing flows, reducing greenhouse gas emissions and enabling last-mile logistics to be carried out by bicycle, tricycle, motorcycle and van.

Claude Samson: Urban logistics is not a separate form of logistics, but a link in the overall logistics chain. The encounter with the “urban reality” and its complexity has created a market with particular fundamentals. This market is reaching maturity in France, as illustrated by projects such as Chapelle Internationale, Caserne de Reuilly, Air2 in Gennevilliers and the Edouard Herriot Port of Lyon logistics hotel, to name just a few.

The urban logistics operations we were able to visit during the trip to São Paulo, such as Good Storage, impressed us with their ability to meet a wide variety of needs, from parcel carriers and express operators to small e-commerce businesses and production activities requiring urban storage.

The issue of low-emission zones, once clarified and implemented, will help further structure the urban real estate market. Consistency in both content and timing is important, as players who comply with a timetable for rules governing access to city centers that are subsequently called into question are penalized.

Pedro Moreira: Logistics plays a fundamental role on these sites. Market dynamics are driving logistics processes at an impressive pace. Today, consumers are in control. Purchases are smaller, more frequent, and delivery times are continually shrinking. In addition, e-commerce will continue to grow in the years ahead, also requiring more agile solutions.

Naturally, this dynamic creates a need for inventory closer to customers and the regions where they live. In this context, the redevelopment of brownfield sites and former properties is being promoted and represents an organic solution. We are already seeing this trend in Brazil. Supply is still limited, but it will gain ground in the years ahead. In the vicinity of metropolitan regions, we also identify redevelopment opportunities, even though land is still available there.

We must optimize resources, do more with less, and the redevelopment of brownfield sites must be treated as a priority in terms of public policy, regional planning and mobility improvements.

Claude Samson: Logistics is truly a “force for transforming regions.” We have a real capacity to convert underused or abandoned land and restore it to an essential function serving people and businesses.

However, brownfield sites are very unevenly distributed across the country. There are many in areas affected by deindustrialization (Seine-Maritime, Moselle), and virtually none in other areas. This is compounded by criteria relating to size and easy access to highways. In reality, the potential for brownfield sites suitable for logistics is limited, not to mention local authorities’ preference to dedicate them to activities perceived as more valuable, financially or in terms of image (housing, offices).

Pedro Moreira: The situation has improved considerably in recent years. Brazilian labor legislation is well structured and must be respected. We have not observed any gaps. In addition, we are seeing companies develop a better understanding of environmental, social and governance criteria. Organizations, including national ones, are more concerned with workers’ quality of life, as well as safety, inclusion and diversity, and pay attention to the social aspects of the communities in which they operate. It is important to highlight the increasing number of women working in logistics, not only at management level but also in operational roles.

Today, there is no longer any room for practices that harm working conditions, whether in Brazilian warehouses or in other sectors. It is important to note that we are seeing growing commitment from leaders who share this view. Of course, there is still room for improvement. It must be pursued carefully.

Claude Samson: We must put an end to the false image that is sometimes conveyed about working conditions in warehouses. No, it is not Germinal! Logistics operators are subject to very strict labor regulations. The stakeholders involved in warehouse design (architects, developers, owners, etc.), together with their clients, go beyond regulatory requirements by providing break rooms, amenities (gyms, picnic tables, etc.), openings that allow natural light in, the use of high-quality natural materials and landscaping.

At Afilog, we are committed to showing the general public what life is really like inside warehouses. In 2021 and 2022, we organized major open-house events, and in 2023 we filmed warehouse interiors using drones.

Pedro Moreira: The real estate market has enormous growth potential, both in Brazil and in other South American countries. Moreover, this segment has only begun to professionalize over the past 20 years. It is still very young. There is room for more companies in the sector, whether foreign or local.

According to forecasts, the warehouse stock is expected to grow by 11% in 2023, reaching 25.7 million sq m. We estimate the potential size of Brazil’s warehouse stock at more than 100 million sq m. While the Southeast accounts for 80% of the stock, growth areas have been identified in the country’s other four regions. However, we lack Class A and A+ real estate.

The Ministers of Transport and of Ports and Airports who took part in the Intermodal Expo and Logistics Conference 2023 committed to building stronger infrastructure. They are also open to dialogue. In our country, 60% of freight transport is carried by road. Logistics must be managed and carried out with a long-term vision.

We must continue developing other modes of transport and integrate them more effectively into multimodal practices. This creates a need for logistics platforms, warehouses and hubs that incorporate these modes. At present, they do not exist in our country. This therefore represents a major opportunity for the real estate sector.

Claude Samson : The issue is far more difficult than it appears, given the many sources of uncertainty. The future of logistics depends on whether reindustrialization ambitions become a reality. For now, land is scarce for both industry and logistics, against a backdrop of land-use restraint, local authorities’ reluctance to accept these activities, and competition between land for business uses and residential land.

Recruitment difficulties compound the situation. The projects currently coming on stream are those launched before COVID. The development of logistics buildings follows a long cycle—three to five years, or even longer. The current low point in project starts will become apparent in a few years’ time. Tax, land and regulatory conditions must improve if we are to meet demand from residents and businesses.