Logistics, first of class asset after the pandemic
Logistics, first of class asset after the pandemic.
We brought Christophe Wuyts and Kristof De Witte, two experts in logistics around the table. The subject of the discussion? The recent evolution of the logistics real estate market and the actual and future trends. It should come as no surprise to learn that flexibility and sustainability are the order of the day in this sector.
A fruitful collaboration.
How do your companies work together?
Kristof De Witte: “At WDP, we purchase, develop, manage and lease logistics real estate with the aim of compiling a portfolio that gives our shareholders a recurring cash flow. Our client base consists of third-party logistic companies, like DHL, and end users. We have an extensive network of companies that we have been assisting at various locations for years. When it comes to end-user clients, we work closely with Ceusters. They pick up on requests from companies we are not yet familiar with, and we can then respond appropriately. Over the years, Ceusters has become a strong player in logistics real estate, with an extensive national and international network. That’s our link. We are also both family-owned businesses, which means we share certain values, like a long-term focus.”
Christophe Wuyts: “We worked with WDP on a variety of transactions and closed a nice deal during summer. The warehouse lease by Rogue in Bornem, which is a great project for illustrating our shared vision on logistics real estate. Rogue, which is based in Columbus, Ohio, is an American manufacturer of premium fitness equipment. They asked us to find a logistics hub that was not only strategically well-located, but also energy-efficient and available within a short time. That kind of request isn’t easy to fulfil in a market that’s experiencing great scarcity. But together with WDP, we found the right place anyway. It is an existing site that will completely be converted to suit their requirements.”
A lack of available land, reconversion and increased sustainability– are these today’s key themes in the logistics sector?
Christophe Wuyts: “They’re only the start! (laughs) There’s a great demand for (semi-)industrial and logistics space. At the same time, fewer plots are available and the requirements imposed on these kinds of buildings are becoming ever more stringent. Not to mention the so-called ‘concrete stop,’ a clamp- down on consuming open green space for construction projects. We are therefore convinced that the future lies largely in infill development and the reconversion of existing peripheral industrial buildings.”
Kristof De Witte: “This in turn requires substantial investments. It’s an exercise we’ll need to carry out for our older buildings anyway – WDP has been around for forty years, after all. You could choose not to do this. There’s a lot of demand, after all. But we see things differently. Not investing would be a very short-term decision. Whereas sustainability used to be a ‘nice- have,’ these days it’s a must-have for many companies. And fortunately so.”
A sustainable investment
Sustainability is anchored in the corporate policy of many companies. You really can’t ignore it these days...
Kristof De Witte: “There’s a high demand for buildings with an ‘Outstanding’ BREEAM certificate. That’s because larger companies literally have to be able to demonstrate their commitment to sustain- ability. As a listed market leader, we want to be best in class and – as in the Rogue story, for example – are making all kinds of substantial investments in sustainability.”
"Larger companies have to be able to demonstrate their commitment to sustainability.” CW
Christophe Wuyts: “Ceusters joined the United Nations Global Compact because we want to commit to the same sustainable goals. These investments also have a very positive effect on the long-term value of REITs: rents can be higher and the valuation of your portfolio increases. It all fits together nicely, because the stock market value follows suit. Which, in the case of WDP, explains the interest of foreign investment funds.
Kristof De Witte: “Multimodality is just one of the many sustainable aspects that come into play. At WDP we don’t just tick the boxes: we genuinely believe that organisations have to take society and the environment into account.”
"Belgium initially lagged behind in terms of e-commerce. The pandemic made us start to catch up.” CW
The boost of e-commerce
Did the coronavirus crisis give e-commerce (and, by extension, the logistics sector) a significant boost?
Christophe Wuyts: “Let’s just say that Belgium initially lagged behind a little – e-commerce had been a big thing internationally for a long time – and that the pandemic made us start to catch up. Even my parents are now also ordering online, for example.”
Kristof De Witte: “The pandemic has undeniably had a positive impact on the sector and set a lot of things in motion. Previously, there was the ‘Just In Time’ concept. Nowadays, we have ‘Just In Case.’ People don’t want to run out of goods, so they want to have a decent stock. Take the current problems with regard to semiconductors in the automotive sector, for example. ‘Just In Case’ is a completely different vision on how to approach logistics as a company. People also have little patience and want things to be delivered very quickly.”
But in order to deliver quickly, your warehouse shouldn’t be too far from your customers...
Kristof De Witte: “This means that demand for a large central warehouse, in combination with various city hubs, is steadily increasing. Which in turn has an impact on the logistics real estate market. Because these kinds of city hubs don’t actually need to be all that large – 5,000m2 or so will do – but you do need the necessary space to accommodate all those trucks and vans. And as I said, there’s not that much land available around here…”
Christophe Wuyts: “Just try finding space for a 5,000 m2 local hub on the edge of a central city. Well, actually, that’s our job. (laughs) In that sense, giving a brownfield business park a second life can be a smart option.”
International but still local
If the Antwerp-Brussels axis is overcrowded, don’t you have to look further and further afield to be able to accommodate logistics real estate?
Kristof De Witte: “The Antwerp-Brussels axis is the place to be if your company focuses on the Benelux. If your scope is wider, you’ve got more opportunities. Take Ghent, Genk or Laakdal, for example. At WDP, we naturally keep an eye on this evolution. We’re constantly scouting good locations, also outside the Benelux and France. Companies first look at logistics flows, then national borders. Only then will they examine how a certain location could affect their business operations. We’re now working with VID from Munich to see how we could anchor ourselves in North Rhine-Westphalia, for example. Our Bavarian colleagues have specific German knowledge of things like taxation, which we our- selves don’t have. What we do have is a network of companies from the Netherlands and Belgium that could be based in that specific region. A win-win situation, in other words.”
Christophe Wuyts: “You should look at the logistics real estate market on a micro, meso and macro level. That’s why Ceusters Industrial Agency evolved relatively quickly, from 2 to 9 employees who are active both locally as on the international market. It’s all about picking up on demands and matching these with the right location and the right player. The right location could therefore be in many different places. At least in theory, because in practice, pickings are slim. But no matter how international a company’s scope might be, in-depth local knowledge and anchoring remains essential. You need to properly analyse and understand the market. Just because a company should ideally settle in, say, Dubai, doesn’t mean that they will. If the company has always been based in Lokeren, it won’t easily move away. You need to take that kind of thing into account.”
Kristof De Witte: “Local knowledge is essential. At WDP, we’re constantly on the lookout for strategically situated locations. You need to think along with your clients. And anticipate things! Essentially, it’s all about putting together the pieces of the puzzle in a smart way. We strongly believe in the concept of cluster locations, for example. Companies looking to expand don’t really want to move beyond a radius of 15km, let alone 25km. After all, they want to retain their staff who are already so difficult to find. In that sense, a good location is also an essential part of the war for talent. So while it requires some additional investment at the start, we always choose to make new buildings divisible, to ensure expansion or reduction is possible at one and the same site.”
“We strongly believe in the concept of cluster locations.” KDW
Flexibility is key
As with office real estate, flexibility also seems to be the order of the day in the logistics sector.
Christophe Wuyts: “That’s right: this evolution is becoming increasingly clear in the logistics real estate market. Take the concept of a campus of 100,000 m², for example. You can keep clients on a site by being able to respond flexibly to their needs at their existing site, for example by ensuring you have the right of first refusal to adjacent space. Remember: it’s an incredible advantage for a company not to have to move and to be able to simply expand on location. It’s a human story too, as it allows you to retain your employees. Don’t forget that, despite all the robotics these days, the logistics world is still a sector that employs many people.”
Kristof De Witte: “Not everything can be automated. This is also because automation, in relation to the duration of a lease, is sometimes not beneficial at all. Precisely because so many people work in logistics, and because demand for workers is so high, you shouldn’t overlook the aspect of social wellbeing. Which in turn – and quite rightly so – requires the necessary investments in the buildings. Incidentally, flexibility also occurs in other areas. Because we’re dealing with the omni-channel concept these days. Logistics companies now serve shops, wholesalers and individual consumers alike. And that means managing three different flows at the same time.”
Flexibility also means being able to foresee which demand will arise for which location and at which moment in time, which is not easy.
Kristof De Witte: “Insight like that does indeed require in-depth market knowledge and cooperation with partners who have an extensive national and international network, just like Ceusters. Flexibility not only plays a role in the event of expandability within a site, but also when it comes to relocations. What should you do in the case of a merger or acquisition? Where’s the best place to accommodate your logistics hub then?”
“It’s important to cooperate with partners who have an extensive national and international network, just like Ceusters.” KDW
Flexibility always comes with a price tag.
Kristof De Witte: “Flexibility naturally leads us to promote the attractiveness of renting in the logistics real estate market. As a company, renting offers you many more possibilities. Which in turn generates recurring income for us. It’s a good deal for all parties involved. In the context of a business strategy, for example, it can be very interesting to think about a sale & lease back.”
Although e-commerce has boosted the logistics market, the resulting increase in mobility caused by delivering parcels is putting pressure on the environment. Surely this won’t be sustainable in the long term?
Christophe Wuyts: “As with many things, some nuance would not go amiss. Studies like to cite the number of extra vans on the road these days, but they forget to deduct the people who don’t travel to a shop because they placed their order online. All the same, this is an issue. One that can al- ready partly be tackled with a greener fleet, not to mention delivery optimisation. In these digital times and with the Internet of Things, there are so many possibilities. So why not combine several orders per street? After all, surely not every delivery has to be made within 24 hours? Express deliveries could be offered for an extra fee.”
Kristof De Witte: “Mobility is a very important topic. A property’s mobility assessment report can make all the difference to the property’s attractiveness. In addition, municipalities, cities, provinces and regions often hold conflicting views. This brings us back to the beginning: land and locations are scarce. So we need to adopt a very smart approach.”
Christophe Wuyts: “And smart means building on expertise, with flexibility and sustainability as the guiding principles ! It should be clear that the logistics market is primarily an and/and story, not a tale of either/or. Everything has to be taken into account.”
In 2014, Kristof De Witte became Development & Acquisitions Director at WDP (Warehouses De Pauw), where he was later promoted to General Manager for Belgium, Luxembourg and France. WDP is a listed family business that specialises in the development and rental of logistics real estate. Over the past four decades, the company has grown to become the market leader in the Benelux. In 2017, WDP was awarded the title of Company of the Year.
Christophe Wuyts is head of the Industrial Agency at CEUSTERS, Board Member of SIOR* Europe and Belgian representative for IRELS**
* SIOR, the Society of Industrial and Office Realtors, headquartered in Washington, DC is active in 32 countries and is recognised as the leading professional commercial and industrial real estate association. ** IRELS, the only international network of independent professionals specialising in the Logistics real estate sector.
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