The real estate segment of logistics warehouses experienced great growth in 2020 and 2021. With the outbreak of the epidemic and the rise of electronic commerce, the appetite for such properties has increased and with it came the demand for lower profitability: investors they were willing to pay more for assets and receive a lower return for these investments
However, when inflation started to rise, this trend reversed and central banks tightened monetary policy and increased interest rates. With an interest rate of over 3.5% on US government bonds, it was no longer interesting to buy ships in Spain and generate the same returns as some funds had done before. From March 2022 to today, Average return required by investors increased between 1% and 1.5%According to the ‘Logistics Property Telescope’ report prepared by the international consulting company EY.
This increase in return requirements has a direct impact on the value of assets.. For example, a one million euro charter ship was bought and sold from 4% to 25 million, but now it is sold at 5% for just 20 million. “Uncertainty, Equality “(capital) and debt, and that should put us on the defensive,” said Javier García-Mateo, real estate partner for Strategy and Operations at EY, during the presentation of the study.
A problem with empty ships
approximate EY figures 3 million square meters of currently empty logistics halls, tenantless. This positions Spain as “the third country with the largest emergency logistics capacity in Europe”. “When we’re speechless about the lack of warehouses in Southern Europe, we have to think about why there isn’t so much demand. Spain is an exception for now, and there is demand, good activity will continue in the coming months”, commented Javier García-Mateo.
This Contract figures for new warehouses in 2023 were three million square meterswhat the consulting firm’s partner described as “very good data despite uncertainty.” According to EY, this is because key operators need to increase their supply of products and require more surface area should something go wrong in the supply chain. Luis Lázaro, manager of commercial and logistics assets at Merlin Properties, assures that “it will be very difficult to maintain contracting levels in recent years”, but that “the fundamentals of the market are very positive” and we are below our European peers.
In addition to the three million vacancies, there is another 16 million square feet announced to be launched. “We have doubts that the ‘pipeline’ will be built. And given the uncertainty, we find it hard to believe the numbers are out for backers,” said the EY partner.
logistics investment
Real estate investment in logistics warehouses will be around 1,500 million euros in 2023.compared to the 3,000 million it represented last year. “We expect investment to drop 50 percent by the end of this year. That’s not a good figure, but we need to see where we come from,” said Javier García-Mateo. Spain monopolized 5% of the logistics transaction volume in the entire European Union during 2022.
The market for land for the construction of such properties may stall if prices are not adjusted. Hasn’t moved for now, but EY assures it May decrease by 15% through 2023 because “new ships don’t get promoted if the ground doesn’t go down.”
Internationally, prices in the United States are adjusted for the new market situation, and this country already accounts for 65% of worldwide transactions.
In recent years, an unstoppable trend has developed at the global level, the consolidation of properties, with the sale of private equity funds (venture capital) to owners and permanent capital: 10% or 15% of all ships were in the hands of 10 big companies a few years ago and now they already own 22%.. Currently, this trend is not so clear in Europe.