Within the real estate world, you are constantly reminded of the basic rule of success: ‘location, location, location.’ No matter what asset class – from offices, high-street shops, shopping centres to logistics units – it always comes down to the location.
Or does it?
Well, in the world of big box logistics, it’s a definitely ‘yes, but’, because, what characterises a prime location for these units is not as simple as for other asset classes. What defines the ‘best’ logistics location is connectivity and cost.
Connectivity because if you want your supply chain to be responsive to customer demand, global links, as well as proximity to suppliers and customers, are a must.
Cost because your profit margin is normally tiny (if you are a third party logistics provider) and the need to keep costs to a minimum to maximise overall profits is extremely high as well (if you carry out your own logistics).
How do you combine these two extremes – the best location and the lowest cost? This was a question that was discussed at a recent industry event held at one of the best connected European logistics hubs – Amsterdam Schiphol Airport.
The debate centred around one particular question: are occupiers still prepared to pay a premium to be located within a major gateway hub? Or otherwise stated, is the pressure to save costs leading occupiers towards alternative, lower cost destinations across Europe that also offer excellent transport infrastructure?
To me, the facts are clear. Just consider the latest trends in the sector, from the changes driven by multi-channel retail, to shifting manufacturing locations and demographics, to the latest rental movement across European logistics hubs. All recently-built large e-fulfilment centres are located in areas never regarded as logistics hubs before (just think of the new Amazon warehouses). They have been chosen for their access to transport infrastructure, existing workforce availability, because of grants (at least in some cases), and, in particular, because of lower land prices – and thus lower occupational costs.
On the other hand, we have seen limited leasing activity in those historic hubs where rental levels for modern properties are often significantly higher than is typical for European markets. In Amsterdam, for example, high asking rents are driving potential occupiers to lower-priced locations in the southern part of the Netherlands, keeping vacancy levels in Amsterdam stubbornly high.
One remark from a leading logistics developer at the event particularly struck me: “A logistics property is the least emotional building that exists”. There will always be occupiers that wish to be located in a state-of-the-art glossy city office building, or want to elevate their brand with a shopping centre that is architecturally daring. But the one thing that will make a logistics property appealing is the savings that can be achieved by its location!
Location, Location, Location? For the European big box logistics real estate market ‘Cost, Cost, Cost’ is the key to success.