Interview with Dirk Sosef, Prologis Vice President Research & Strategy

As demand for industrial spaces soars and vacancy rates hit historic lows, alternative warehousing models such as retail conversions or multi-storey facilities are looking like increasingly attractive solutions. In a recent interview with Dirk Sosef, Vice President Research & Strategy at Prologis, Ti asked him about the economic viability and benefits of retail-to-warehouse conversions and multi-storey facilities.

Locations of multi-story facilities and conversions

These facilities are only financially viable at the right locations. This is because developing or converting multi-storey and retail-to-warehouse facilities is more complex and requires a higher spend on construction than traditional facilities. These facilities will therefore only exist in a few selected markets where the rent values are really high, not in every European city. Customers do generally prefer more traditional logistics facilities compared to a converted or multi-storey facility, but in really congested cities or where land is scarce, customers may find that they need to look for alternatives.


In markets with a high throughput level, multi-storey facilities are beneficial as they are closer to the end-customers, due to their proximity to large purchasing hot spots. This reduces transportation costs and reduces emissions. There are also cost savings associated with this, as more European cities are moving towards adopting low or ultra-low emission zones, with charges imposed for diesel vehicles.  Also fuel costs are continuing to rise. Prologis research has found that transportation costs as a share of total core supply chain costs have increased from around 50-55% to approximately 60-65% since the end of 2018 in Europe.

Urban facilities may also be beneficial in addressing certain inventory challenges if they are utilised by customers with high throughput levels, as the products don’t need to be stored for such a long time therefore less space is needed.

Furthermore, urban facilities often have access to a wider range of value-adding skills from nearby labour pools. This is particularly important as there are usually high levels of automation in urban facilities. However, if urban facilities are not the solution to labour shortages; within urban locations unemployment levels are generally lower and it is still challenging to find labour inside of cities as well as outside.

Demand versus available land

So, is demand for these types of facilities increasing? It is in the more constrained European markets, with demand coming from a diverse range of customers. Research by Prologis shows that by Q1 2021 the share of multi-storey in the total development volume of warehouse facilities was around 10% in Europe. This is still not very high, but it is significantly higher compared to 3 or 4 years ago when development volume for these alternative urban facilities was close to 0%.  

However, at a market level the pool of suitable sites is limited. When considering multi-storey development, the land value needs to be really high – this type of warehouse is ideal in larger cities where land is at a premium. This is not the case therefore for a lot of markets in Europe. Within the more suitable markets like London or Paris, there is also intense competition for land amongst a wide number of industries. Overall, there is not enough land to meet the demand.

So what’s next?

Prologis is looking at more locations for multi-story facilities and conversions. There are lots of opportunities for brownfield redevelopments, as development costs are lower than trying to enter more developed markets in the middle of cities such as Tokyo or Hong Kong.  Europe is a tough market to enter, as there is no real blueprint there. Although there is a movement to a multi-storey model because the benefits can outweigh the challenges

In conclusion, retail conversions and multi-storey facilities can provide a lot of viable benefits, but only if they exist in the right markets and are utilised by the right customer. The actual demand for urban logistics is difficult to quantify, but the potential is there. It is now a question of whether the more constrained European markets will adopt these facilities more widely.  

Source: Transport Intelligence, 11th of August, 2022

Author: Ti Insight