Research – May 2020

SPOTLIGHT The Logistics Market in Savills Research Spotlight The logistics market in Valencia - May 2020

The Logistics Market in Valencia A Booming Market

The has more than 2.5 sectors of the economy. Its customers include sector has developed significantly in the million inhabitants, of which 1.5 million are construction companies (cement and clinker, region, especially around the city of Valencia, a concentrated in the capital and its outskirts. tiles, marble, etc.), energy companies (diesel, development that has increased in recent years. Valencia is thus the third largest city and petrol, coal, etc.), chemical, automotive, population centre in Spain, after and furniture and wood, textiles, and shoe and In addition, the Autonomous Region of Valencia . Situated on the Mediterranean coast, machinery companies. is home to an important industrial sector, the city has one of the busiest shipping ports in including the textile, agro-food, tile and Spain. It is an entry point for products that are The port of Valencia has the highest automobile (Ford) industries. These sectors subsequently distributed not just throughout container traffic in Spain, ranking fifth in the generate large storage and distribution needs. the region, but throughout the whole country. Mediterranean, and is key to the country’s The port of Valencia channels traffic from all foreign trade. Consequently, the logistics The good connections with cities such as Madrid, Barcelona, Zaragoza and Alicante make Valencia a strategic point in the traffic of goods. Its importance will increase with the future Map 1: Valencia’s logistic areas development of the Mediterranean corridor. Besides the industrial sector, the Autonomous Region of Valencia also has a strong service and

Sagunto construction sector. North The total stock of logistic spaces in the Valencia Pista de axis market exceeds two million square metres Lliria (medium and high quality logistic product), which is approximately one fifth of that of Madrid and one quarter of that of Barcelona. The logistics activity has been developed mainly Central axis in two areas located in the outskirts of the city of Valencia: the central axis and the southern axis, which concentrate 60% and 30% of the Ribarroja total stock, respectively. de

Paterna The analysis by municipality shows that four out of every ten square metres are concentrated around the township of Ribarroja, Valencia’s big logistics-related real estate market. Valencia Other municipalities with a high presence of logistic activity are , Quart de Poblet, Valencia ZAL and . The four zones Mercavalencia together account for just over 20% of the Sedavi surface area devoted to logistics activities. Finally, the new logistics centre being created in should be highlighted, with the Beniparrel presence of some of the main commercial Picasent Silla operators and logistics companies at the Alcasser national level.

South At present, the two million square metres axis of logistics stock are distributed as shown in figure 1. As in other large markets, such Almussafes as Madrid or Barcelona, there were hardly Benifaió any developments in the Valencia market in the 2008-2014 period. Consequently, at the beginning of the current cycle of economic growth, the logistics stock in the city of

Source Savills Aguirre Newman Valencia had a certain level of obsolescence savills-aguirrenewman.es/research 2 Spotlight The logistics market in Valencia - May 2020

and was not prepared, due to its size and or no rental options. These potential buyers and Table 2 shows the estimated rents for each of the four characteristics, for the logistics activity that leasers will have to satisfy their needs with the areas of the Valencia logistics market. The figures refer many commercial and logistics operators need speculative supply currently available or through to late-generation logistics platforms or warehouses to carry out. the development of turnkey projects. meeting the appropriate quality standards. There are products on the market that do not meet these A moderate growth in development activity Rents standards and can therefore be rented at levels below was observed from 2015 onwards, and it The limited supply available on the market the references listed in the table mentioned above. has continued to grow until now. Today the with appropriate levels of quality and size has development activity is notable in areas like been driving up rent prices for modern product Rents at the end of 2019 range from a maximum of Sagunto, Cheste, Ribarroja, Lliria and Picassent, adapted to the needs of the demand. However, €4.50/sq m/month for the best located product (or among other municipalities. the entry of new speculative supply offerings, even directly in the prime area), to €3.25/sq m/month together with the various options available for products in locations farther away from the city. Future supply for the development of turnkey projects, has During the first quarter of the year, before the start of The future supply currently being envisaged slowed down this growth and rents can now be the Covid-19 health crisis, rents remained stable with involves increasing stock by approximately considered to be stabilised. respect to the levels of the previous quarter. 400,000 sq m over the next 12 months, 80% of which is already committed. To this surface Figure 1: Stock (% of total surface) area we must add the availability of land for the development of turnkey projects, which adds an additional surface of almost 250,000 sq m. Development is currently concentrated South axis; 29% in the vicinity of markets with a long logistics tradition, such as Ribarroja and Cheste, both in the Central Axis, further consolidating this area as the great logistics market of Valencia.

Similarly, the high level of development activity around Sagunto (North Zone) in the Parc Sagunt industrial estate is noteworthy. Users North axis; 2% Central axis; 62% of this industrial estate include, among others, Grupo Mercadona (which will begin operations Pista de Ademuz; in 2021), Grupo Tempe (Inditex), the food group 7% Dacsa Group and Importaco. These users plan to develop logistics platforms for different activities. Source Savills Aguirre Newman

Land has also been purchased in the area around Table 1: Future supply (next 12 months) Sagunto Gazeley, in what is a clear commitment to this market by one of the largest specialists in Area Surface (sqm) Developer User investment and logistics promotion on a global level. The development, with a surface area of Cheste* 55.000 Lidl Lidl

90,000 sq m, is aimed at companies that need a Sagunto 70.000 Mercadona Mercadona distribution centre in southern Europe, as they benefit from excellent transport connections with Sagunto 26.360 Mercadona Mercadona the entire continent. Picassent 81.000 Turnkey P. L. Valencia Sur

Table 1 shows some of the most representative Sagunto 90.000 Turnkey Gazeley projects, by size and future user, that are being *delivered in 1Q 2020 developed in the Valencia market. The Lidl Source Savills Aguirre Newman platform in Cheste was inaugurated during the first quarter of the year. Two turnkey projects are also included, as an example of the additional Table 2: Estimated rents (4Q 2019) development capacity of the logistics market in

Valencia. Area Average Max.

Current Availability Central axis 4.00 4,50 At the end of 2019, just over 35,000 sq m, basically South axis 3,50 4,25 concentrated in the central axis, were available for immediate occupation (aprox. 2% availability). Pista Ademuz 3,25 4,00 The main characteristic of the supply is the lack of availability of large surfaces. Thus, the demand for North axis 3,25 3,75 spaces in excess of 10,000 sq m would have little Source Savills Aguirre Newman

3 Spotlight The logistics market in Valencia - May 2020

Demand The central has concentrated just over 55% of Valencia, where six out of every ten square In 2019, more than 275,000 sq m of contracts the contracting, as a result of the high activity in metres contracted in 2019 have been closed. were signed, the highest level ever, representing municipalities such as Ribarroja and Cheste. The Valencia’s consolidation as one of Spain’s top three southern axis, with the purchase by Top Recambios The 1Q of 2020, with an absorption close to logistics markets. The four largest transactions of 45,000 sq m in , and the Ademuz Track, 40,000 sqm, has meant a considerable adjustment accounted for slightly more than 190,000 sq m, thanks to the rental of 60,000 sq m by Conforama in in contracting compared to 1Q 2019, which was representing 70% of total contracts. The average Lliria, were the next most important areas in terms of the best in the historical series. However, it is a surface area was over 10,500 sq m, driven by the contracted surface area. level of contracting similar to that achieved in rental of large platforms by retail operators such years prior to 2019. as Conforama and Jysk, and by logistics operators By rings, the activity has been concentrated such as Dascher. basically in the areas closest to the city of Investment Market The logistics market has continued in 2019 with a high level of activity in the main markets, Table 3: Demand (Main operations) namely Madrid and Barcelona. This activity has also been reflected in smaller markets such as Valencia and Zaragoza. Transactions worth Crown Area Municipality Tenant / Buyer Tenancy Regime Surface (sqm) €1.9 billion were recorded in Spain in 2019. In 2ª Pista de Ademuz Lliria Conforama Rental 59.641 the case of the Autonomous Region of Valencia, seven assets were sold, five of which were

1ª Central axis Cheste Jysk Rental 53.000 acquired by international investors. This is a sign of the growing interest in this market for international institutional investors. 1ª Central axis Ribarroja Dachser Rental 35.000

The initial rate of return for prime warehouses/ 1ª South axis Alginet Top Recambios Ownership 45.000 platforms located in the best areas of the first ring (Ribarroja) is 6.00%. Source Savills Aguirre Newman

Figure 2: Investment market (Spain) Covid-19 effects Increased demand by e-commerce operators that serve the area of ​​influence of Valencia, the Invest. Vol No. Deals (right axis) third largest urban agglomeration in Spain. The foreseeable increase in online shopping compared 2.000 60 to the pre-covid situation, once the health 1.800 emergency is solved, will require a re-dimensioning 50 of the logistics spaces dedicated to this activity. 1.600 1.400 The fall in household consumption, as a consequence 40 of their lower spending capacity, could lead to a lower 1.200 need for logistics area for those activities related to 1.000 30 products that are not essential. Millions

€ 800 On the other hand, it is early to know the effects 20 600 that the Covid-19 will have on global supply chains and, consequently, on the logistics activities of the 400 10 port of Valencia. In any case, the strategic situation 200 of Valencia in the western Mediterranean, as a gateway for goods to enter and exit the Iberian - - Peninsula will remain important.

Source Savills Aguirre Newman / *until 1Q 2020 savills-aguirrenewman.es/research 4 Savills Aguirre Newman Research We carry out a thorough and objective analysis of the real estate market in order to provide our clients with accurate information on the current situation in each of the sectors, helping them make the right decisions at each moment.

SAN Valencia Logistics Ignacio Olivas Antonio Montero Head of Valencia Office Head of Industrial & Logistics +34 963 11 42 80 +34 91 319 13 14 [email protected] [email protected]

Research

Pelayo Barroso Gema de la Fuente Enrique Marraud Director Director Research +34 91 319 13 14 +34 91 319 13 14 +34 91 319 13 14 [email protected] [email protected] [email protected]

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