P3’s local knowledge helps customers thrive in logistics markets across Europe. Otis Spencer, P3’s Chief Investment Officer, shares his forecast for a ‘complex’ 2022.
How will P3 develop its services for customers this year?
“We want to grow with our customers and we want to grow sustainably. A big part of that is understanding them and how we can help them. It’s not just a landlord-tenant relationship. Our customers’ businesses are changing; they need more technology and new solutions.
“So we‘ve made the decision to further develop our investment capabilities. We recently appointed an investment manager for France, who’s responsible for sourcing opportunities and we’re hopeful of appointing a similar role for Germany and also in Italy, as well. We will also soon have someone starting in Poland.
“This is because it’s important to have ‘boots on the ground’ in the form of investment managers and in-house asset managers in regional markets. This skill set and local expertise means we can identify quality locations and assets.
“Our real value-add is our teams who talk with customers and potential customers about how we can solve their issues, such as providing an ASTI (Above Standard Tenant Improvement), investing in racking systems, electric vehicles, or improving local amenities. Another benefit we offer is we have the capital for instruments that may help.”
Which trends matter in 2022?
“It's a very complex picture. The conflict in Ukraine is going to create more uncertainty in terms of inflation, business outlook and other factors which potentially mean interest rates won’t increase as rapidly as we thought.
“Also, customers continue to have more appetite for space. The behaviour of modern consumers has changed permanently and online retail is established for the long term, which inevitably involves taking on more space.
“Last year, we saw yield compression across the board in markets. This year, the expectation is not that yields will compress to the same degree as they did, but neither do we expect yield expansion, short term. There's talk of debt, costs and interest rates going up and the normal expectation would be for yields to go up, but right now what we’re seeing is that yields have plateaued.”
What’s in the 2022 pipeline?
“We have pretty good exposure in central and eastern Europe and our focus is to grow more in western Europe. Germany, the Netherlands, France, Spain and Italy are growth markets for us. In some of those countries, we are currently in the running to acquire single, value-add assets and we’re working hard to allocate more.
“The opportunity we’ve identified is that we want to focus more on our development capabilities. As the competition for acquiring core assets is high, we’d rather build these ourselves whenever possible. We’re looking more in that core plus, value-add space as that’s where we can find accretive returns.
“So, despite the market being challenging right now, with high competition for fewer opportunities, we are happy to have a robust pipeline, in terms of acquisitions as well as developments. Many of these opportunities are being created by the expertise of our local teams in markets across the continent.”
What were some highlights of 2021?
“P3 Echt was the best deal in terms of value creation. It was a forward purchase that we bought on a speculative basis. P3 Echt is a warehouse in the south-eastern Netherlands near the German border, with one of highest sustainability ratings in the country. We took a big risk as it’s in an area that’s not known as a logistics cluster.
“We took some leasing risk, but we felt we were getting attractive entry pricing for the scale and the size. We created a lot of value because we were able to rapidly find a sole occupier for 100% of the building. The fact that we were able to get one customer with an institutional-quality covenant, this ticked all the boxes of value creation.
“An investment highlight in 2021 was also the acquisition of a fully leased portfolio of five ‘big box’ logistics assets with a total of 112,000 m² in top locations near Madrid and Barcelona, for around €108 million.”