Developed by Panattoni: The City Logistics Park 1 near Warsaw, Poland. © Panattoni

LTM : How do you assess the current market situation?
Bohne: The yield compression leaves investors hardly any leeway, so it makes a difference whether you invest in a profitable investment property with a yield of 4.25 percent or develop a property speculatively with the prospect of 5.5 to 5.75 percent yields. Price pressure is being exerted primarily by Asian investors pushing into the European market and has led to core and core-plus investors increasingly investing in speculative project development. In this way, the same property is available with better yield prospects. In addition, the chances of winning the bid are higher in project development than competing with ten investors in the tendering process.

LTM : Which capital structures do you think are most suitable for project development?
Bohne: Project developers can work with an existing network of investors or award individual projects outside this "family and friends". The latter is usually more difficult and less efficient, but sometimes we also prefer this option. A broad offering for investors enables us to meet the needs of some large customers who may require a production property with 50,000 m2 of space, as well as to develop fulfillment centers with around one million square meters of space for Amazon at several locations in Europe. In order for a project developer to offer such a wide range of services, it needs large, efficient teams on site. Unlike in fund management, a centralized structure and small teams are not effective in project development. Successful project development requires access to land, tenants and local submarkets. This can be a challenge, as the projects are associated with high investments and the business is based on development cycles. Project developers must therefore constantly keep an eye on the market and adapt their offering accordingly.

Looking for logistics space close to the city: Fred-Markus Bohne. © Panattoni

LTM : Now the demand from the capital market is at least as great as from users. How do you meet the high demand?
Bohne: The speculative development of industrial and logistics properties allows us to respond relatively quickly to market demand. We have been pursuing this approach since 2016, but the situation has worsened. Demand is increasing, while official approval processes are becoming more complex and lengthy. There is also a serious shortage of space in the logistics hotspots in Germany. We are countering this by anticipating demand and making space available on a large scale on a speculative basis. We have already secured land in numerous top logistics regions in Germany for this project. By the end of 2019, this should amount to around one million square meters. Speculatively developed logistics parks are planned in the Berlin, Hamburg, Hanover, Ruhr, Lower Rhine, Düsseldorf, Cologne, Frankfurt, Munich, Stuttgart, Rhine-Neckar and Nuremberg regions. Logistics parks allow us to meet demand faster and more efficiently.

LTM : Let's take a look into the future: what solutions will tomorrow's logistics properties offer and how do you assess the market for city logistics?
Bohne: This is an exciting field. E-commerce requires space, even in the vicinity of cities and in inner-city areas to supply the last mile. In urban areas, even mixed-use properties for logistics, retail and offices or multi-storey logistics properties can be a solution. City logistics properties offer high rent retention because inner-city logistics space is rare and has a high degree of third-party usability, even for retail or office use. This in turn promises investors a low letting risk and secure cash flows, which makes investing in this new type of property lucrative. However, despite convincing arguments, the city logistics sector is still in the experimental phase. The investment entails a certain market risk, as the success of new concepts will only become apparent in the medium term. But nothing ventured, nothing gained. In any case, we at Panattoni are working on the transformation of logistics real estate and will shape it positively with innovative concepts.

LTM: Thank you very much for the interview ,
Mr. Bohne.

Panattoni Europe:
In this year's EU Property Magazine ranking, Panattoni Europe is Europe's leading project developer for industrial and logistics properties in terms of square meters of developed space. It is a subsidiary of Panattoni Development Company, Newport Beach, USA, an owner-managed and leading global developer of industrial and logistics space with offices in North America and Europe. The portfolio includes speculative project development as well as user-specific build-to-suit solutions, fee development, logistics parks and property management. Since entering the European market in 2005, Panattoni Europe has developed more than 6.3 million square meters of new space. Panattoni Europe plans to invest 1.2 billion euros in city logistics. Four city logistics projects are already under development in Poland. In Germany, one of the company's focus markets, further projects will follow within the next three years.