Christian OllerCountry Manager of the logistics firm Prologis and spainpresented a few months ago the project of his company to occupy the land of Nissan in the Free Zone. His project then reflected his ambition to provide modern two-story facilities to companies that were going to locate, a trend in the logistics sector on suitable land to cover the Barcelona area. Finally, he acknowledges that the specifications imposed by the reindustrialization commission made the economic viability of the exploitation of the more than 500,000 square meters located near Barcelona difficult. He answers about the Free Zone issue, but also about the progress of the logistics sector after record years. the multinational Prologue manages one and a half million square meters of logistics platforms in Spain. He predicts a rise in rents of between 9% and 14%, falls in prices for industrial developable land of 30% and the end of the logistics ‘boom’ of recent years.
How do you assess the end of the public tender for the land of Nissan in the Free Zone?
It has been left in the hands of Goodman. A contest was established. We were calmly analyzing it and we presented a project that at the time made sense, but the reality is that the uncertainties created by remaining responsible for the land but with an occupation component or requirement for the electromobility industry, with excessively rigid that did not allow for other uses or activities apart from those related to the electric vehicle, the commercialization of that space was very corseted. Goodman must have found a way to save the risks and must have greater confidence that he will be able to manage those lands to focus on reindustrialization.
Requirement of support for electromobility…
The logistics project was very residual according to the specifications. Personally I will be happy if all the Nissan staff can relocate to the new industrial projects and the industry is protected.
But doubt that goal… could there be a covert logistics goal?
I understand that there has been rigor. There was the Roca & Junyent law firm and the Free Zone Consortium designed a competitive process. I don’t think it’s a covert logistics project. There is a small logistics percentage and a much higher industrial percentage. If in the end it were logistical it would be a scandal and it would be impugnable. It has been done seriously. They are unique terrains. If in the end the lands were not for industry it would be a scandal.
Do you plan to contest the contest?
We believe in the good faith of companies. It will be an industrial electromobility project with a logistics part, which was one of the most attractive parts. The specifications establish windows for the expansion of very specific logistic uses, year by year, if in the end the industrialization project has to be smaller. The reindustrialization project has been highly protected.
Did other companies that aspired to the bankruptcy even threaten to appeal the bankruptcy?
There will be resources in the event that the reindustrialization objectives are not met. There can be no stores that do not have to do with electric vehicles. If there is storage of other types of products, it would raise resentment to more than one. And us too.
Will they supervise that the requirements of the specifications are met?
We will be pending. But our path as a company continues. We follow the market very closely and we want to continue growing in Catalonia, Madrid or Valencia. What was a nice project? Yes. What are magnificent grounds? Of course. But it was entering a space, renting it, seeing who was the right client… It was difficult to fit it into a flexible business project.
The logistics market situation
At what prices is the logistic square meter being paid at the moment?
The price of land varies a lot. In Sant Boi it can be 600 euros per square meter and 70 or 150 euros in Lleida. The Free Zone and L’Hospitalet are at high prices, but less than a few months ago.
Is the valuation of the ships going down?
Yes. They are easily down 15% last year.
Does that trend continue?
Yes. It will continue in the next two months.
Oversupply?
There has been an asset price correction. Returns have expanded. If more profitability is sought for the investments made, less is paid for the asset. The price of land should drop in the order of 30%.
Have the construction costs of the warehouses increased and should that influence a fall in the price of industrial land?
The cost of construction rose and has stabilized. But stay high. Financing costs have also increased. The promoters of logistics facilities seek profitability for the investments made. Therefore, a residual calculation is made that gives you the maximum price that can be paid for the land, the entrance fee, since the rest of the costs are given to you. For the logistics investment to be profitable, the price of land has to drop by around 30%. Otherwise it is impossible to make new logistics warehouses.
It is not clear that all influencing factors are fixed…
The available land is less and less. Practically in the first crown of Barcelona it is null. And all available land needs planning, legalization processes with new costs. If construction costs are high and financing costs are high, and rents have not yet risen to the levels of the past, the only variable left is the price of land itself.
And the rents go up…
If there is little space available and demand remains strong, rents will continue to rise. This year the rents will go up. Another thing is that logistics companies can pay higher rents for their warehouses. But if you need a specific location, you will be forced to pay.
But the uncertainties around electronic commerce continue…
There are four levers that will continue to pull the logistics sector. The ‘online’ sale has entered a plateau and it is true that companies like Amazon have gone to a halt, with more space than they needed. That does not mean that it does not continue selling, but it is in the stabilization stage. But there are companies that are still developing their activity ‘online’ and need warehouses. The growth of electronic commerce will continue because we are still below other European countries.
Talk about more levers that favor growth…
The second lever is the obsolescence of assets itself. Low warehouses, without environmental certificates, without parking, which are not functional… New modern logistics platforms will be needed. Another lever is the relocation of industrial facilities, the ‘nearshoring’, we are seeing trends of transfer of production to areas close to consumption. It is still incipient, but we are already seeing it. Companies that need to produce parts, store finished product. We have an electric trial motorcycle assembler in Sant Boi. You have transformed a warehouse into a production line. The emergency stock also encourages having more warehouses. That stock has increased by 12%.
But the complex macroeconomic situation may affect the consumption and activity of logistics customers…
There will continue to be layoffs as a result of inflation. Consumption will go down. That will continue to happen, for sure. But the situation has been less serious than expected. Yes, we are in a recession, but it is mild. There are counterweights.
As a business manager, have you decided to keep up with the investment pace?
Yes. We will continue to grow through purchases of companies, land or assets, but being disciplined and at the right price. Last year the parent Prologis bought the Duke company for 30 million. Operations of this type will continue to be carried out.
And in Spain?
Our most important markets are Madrid and Catalonia. We are finishing a space of 40,000 square meters in Guadalajara and we have three interested clients. It is a modern building with 14 meters of usable height. The usual standard is 11 meters. In a current situation of scarcity of land, we increase the height of the logistics warehouses. In the end it equates to about 60,000 usable square meters.
A project similar to the one that Prologis proposed for the Nissan land…
Yes. New architectural solutions are being developed that allow prices to be contained.
But is there an oversupply?
There was something last year in the Madrid area. In Barcelona there is a shortage. With an availability of less than 2%, while in Madrid it reaches 7%. In general, rental prices will rise because it is sold at a faster rate than the supply of logistics warehouses is generated.
To what extent will the rents to be paid in the logistics platforms go up?
They will rise on average between 9% and 14% this year.
Difficult for any company to assume that rise…
Well, you won’t be able to change stores. Or you will have to look for savings in other fields. In the end, companies tend to concentrate certain activities with which synergies are achieved. One idea is to concentrate several warehouses in a more modern one. Or approach or move away from the consumer to save on transport costs or labor. Business costs do not have to rise at the same rate as the rent paid for the logistics platform.
Self-consumption of electricity, for example…
That is an element of improvement of the new facilities to highlight. Everything has to be put in context. In the end, the law of supply and demand marks the rise in prices.
What was the rise in rents last year?
It was more moderate because the available supply was being absorbed. But currently Prologis in Spain is at an occupancy level of 99.2% with one and a half million square meters managed. There are two modules left in Coslada, a space in San Fernando de Henares, almost nothing.
He says that they are not obliged to grow but I see that they need to achieve more spaces to manage…
Yes. To provide customer service. But there is no investment requirement. If it is not reversed, nothing happens.
But there are investments underway…
In Hospitalet, near the Ronda de Dalt, almost in Cornellà. It is what we call the Gate of Barcelona, for last mile management or delivery. We also have another warehouse in Sant Boi. 30,000 meters in San Fernando de Henares and 40,000 in Guadalajara. In total about 92,000 meters. In BCN about 1,250 euros per square meter, about 31 million investment in 21,000 square meters. About 87 million euros invested in Madrid.
What trends are emerging in the logistics sector? Warehouses for the emptied Spain?
Yes it is a trend, but it is not our business to be in small towns. But this general trend of building logistics infrastructures in areas that a few years ago was unthinkable is taking place. For example, in Seville, Vitoria or Vigo, with less population but in need of large distribution centers to channel e-commerce sales in the area.
What are the needs of the new logistics platforms?
Electric chargers. Renewable energy. Energy storage. It is what customers demand. And customer experience with friendly facilities, higher productivity and reduced absenteeism.
Last year was the year of the logistics boom. Will this rate continue in the coming years?
It will not be possible to maintain similar growths. But rents have been stable in recent years. The market has been spoiled, with flat rents and stable productivity. The rents that existed in 2006 have not yet been reached. The upward trend is still maintained. All rents will rise, I am convinced.