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Build-to-Suit market drives revival in logistics development says Jones Lang LaSalle 


​Development activity in Europe’s main logistics markets has been on an upward trajectory over the last few quarters with development activity at its highest level since activity plummeted in 2008. However, research by Jones Lang LaSalle (JLL) has revealed that whilst the headline numbers have been rising, the composition of current development is very different to that of the previous cycle.

Low speculative development
Before 2008, strong speculative development pushed a stream of new space onto the market and caused an expansion in levels of supply. However today, development is being driven by build-to-suit (BTS) and owner-occupier developments. Of the 7 million sq m total logistics floor space under construction across Europe, JLL estimates that over one-third is being built by owner-occupiers, while another 55% of the pipeline is already pre-let

“Speculative development amounts to about 10% of all development - slightly over 700,000 sq m at the start of this quarter. Well over half of this space - around 400,000 sq m, is concentrated around Moscow and St. Petersburg, where vacancy rates are close to zero. Therefore the overall net effect on supply levels remains limited.” Said Philip Marsden, Director, Pan EMEA Industrial Capital Markets at Jones Lang LaSalle.

 
“Low completion volumes in combination with robust demand over the past three years have reduced readily available modern space to its lowest level over the last decade.” Marsden added.

Improving economic growth and market sentiment – and low availability – is encouraging certain developers to return to some speculative development. However JLL expect that the likely scale of activity will not lead to significantly increasing supply in the short to medium term.

 

Demand for the mega-buildings
Strong owner-occupier and BTS activity is partly being driven by requirements for very large facilities, including retailer requirements to service expanding online and multi-channel distribution channels. Many of these facilities involve mega-buildings (eg 100,000 sq m or bigger) which are often located within non-core distribution locations providing large sites, a sizable and competitive labour force and potentially financial assistance.

Examples of such units currently under construction include an almost 100,000 sq m e-fulfilment centre at Nord Pas-de-Calais (France) for Amazon, three distribution centres across Germany:  175,000 sq m for bookseller Koch Neff Volckmar (KNV) at Erfurt, 150,000 sq m for food retailer EDEKA at Lauenau near Hanover and 75,000 sq m for Zalando at Möcnhengladach.

Speculative and non speculative logistics development.png