AXA IM Alts, a global leader in alternative investments, is the number one property portfolio and asset manager in Europe with €74 billion of AUM in Europe, including the UK, in private direct real estate as of the end of June 2023. Logistics is no exception, with over €11 billion of AUM at the same date, managed by the team. Thomas Karmann, Global Head of Logistics at AXA IM Alts, has no doubt about the Italian market: the country stands out in Europe for the high and stable profitability of logistics assets. At present his division manages 780 000 sqm South of the Alps,. As part of AXA IM Alts strategy within logistics in Europe, they will keep injecting capital in the area as more resources are raised. He explained why to BeBeez Magazine.
BeBeez Magazine: Market players depict Axa as one of the investors most attracted by Italy-located warehouses, why is it so?
Karmann: All over Europe the logistics market experienced a sharp increase of rents accordingly to the rising volumes of space absorbed by the growing needs of e-commerce, particularly during the pandemics. In 2023 the take up in Europe went down around 30% because that surface gap was basically filled and now the market is “back to normal”. Italy is a striking exception, with a 705.000 sqm take-up in the third quarter of 2023 alone, i.e. roughly a 30% increase on the same period of 2022.
BeBeez Magazine: But how long will the rents hike last?
Karmann: Potentially for a long period. What makes Italy so special is the scarcity of land available for new developments. In the Lombardy and Emilia Romagna regions new local regulations make it almost impossible to build new spaces on land that is not zoned for logistics, while in other regions like Piedmont large spaces are devoted to agriculture and no developments are possible. As a result, there are less than 1 million sqm under development at present, whereas last Summer in Italy we experienced a 230.000 sqm per month take-up, So the supply of new spaces barely meets next four-five months demand.
BeBeez Magazine: Can rents achieve a level which is unbearable by tenants?
Karmann: Today warehouse rents account for between 7 and 15% of the overall delivery cost of goods, with transportation weighting for over 30%. So， the impact on consumer prices is quite limited. Just as an example, in the Sidney area rents went up 49% in one year, and in Inland Empire serving Southern California rents went up over 25%/year.
BeBeez Magazine: Today the market rests on the assumption that rents will stay high for long. But what if an economic downturn pops up? Could it drive rents down?
Karmann: There is only one condition capable to trigger a descent of rent rates: the increase in the supply of space, which in turn needs lower interest rates and construction costs. And in Italy, on account of what I said before, this may be not enough.
BeBeez Magazine: Some players say that the South of Italy may bridge the gap between supply and demand for soil.
Karmann: The South of Italy does have potential, but the market is not deep enough. A long period may elapse between a lease breakage and a new lessee coming in. Usually, the break notice must be issued six months in advance, so a new tenant should be found within four or five months. In the South this is difficult, so you are likely to be left with an unoccupied asset for a longer period, which impacts long term returns.
BeBeez Magazine: At present you manage 700.000 sqm in Italy. Do you plan to enlarge your assets under management in the country as regards logistics?
Karmann. We have launched a strategy in Europe, in 2019, that has thus far grown to around Eur 5 billion, and new capital keeps coming in. We intend to grow our exposure in Italy in line with the overall growth of our logistics asset class strategy, as we are convinced of the solid market fundamentals.”
