2024 was not an easy year for the world of logistics real estate either, especially as a listed company. Jo De Wolf, CEO of Montea, is cautiously optimistic, as well as realistic, about 2025. A lower interest rate can and will give the entire real estate sector some much-needed breathing room. He feels downright optimistic about the longer term. It is simply impossible to put off investments indefinitely, especially in infrastructure, residential construction and logistics.
What was 2024 like for your company and your sector? Let’s start with the good news.
2024 was a good year for Montea. We expanded our portfolio by €400 million. In addition to our own developments, we were also able to make new direct investments. That was a fun surprise, as this was not possible between the summer of 2022 and the end of 2023. In 2024, we were able to make important acquisitions in the port of Hamburg. We also acquired a land bank in France.
What was the bad news?
In 2024, there remained a discrepancy between the continued confidence in direct investments in logistics real estate and the share price of listed real estate. Montea was not the only company affected by this. Today, direct investors in logistics real estate accept a yield of less than five percent. Why is that? Generally speaking, professional investors still have confidence in logistics real estate. Listed real estate still struggles with a discount on its net asset value (NAV). For logistics, that discount is smaller than in other sectors of the real estate market. More than ever, we are convinced that all our real estate is correctly valued. Yet investors remain unwilling to accept this. In late December, our share price still shows a discount of circa 20%. You would expect investors in our shares to be willing to pay extra for our continued growth and the successful machine that we have expanded since our listing in 2006.
How do you explain this discrepancy?
The explanation of this aberration has nothing to do with Montea or the logistics real estate sector or even with listed real estate in Belgium in general. Before 2022, we had little trouble attracting foreign – especially American and British – generalist fund investors. These days, they are investing almost exclusively in the US and far less in Europe. That has to do with geopolitical conditions, Trump Trade, the stricter ESG regulations in Europe, the political tension in our neighbouring countries and in Belgium,… Major Belgian institutional investors, such as insurance companies and pension funds, are divesting from real estate. Partly at the recommendation of the NBB they are reducing the percentage of real estate in their investment portfolio. Relative to other categories of real estate, they are not reducing their investments in logistics real estate. Although small investors held on to their investments in the sector, they cannot compensate for these losses.
Is this a yield problem?
Not at all. Our sector continues to offer attractive investment opportunities. Today, we immediately offer a gross yield of 8%. If you got on board during our initial public offering eighteen years ago and immediately reinvested all dividends, you would have earned an annual net yield of 10% on your real estate investment. What other direct investor can boast results like that? Remember that we are currently going through a real slump. In the summer of 2022, our yield was 17%.
The market is still adjusting to the fact that we are back to normal. We have seen some abnormally favourable conditions, especially for the world of logistics real estate: the strong rise of e-commerce was bolstered by the unusually high demand and the supply chain disruptions during and after the Covid pandemic, as well as the free money. That time is well and truly behind us now.
Is the current situation as bad as it was during the financial crisis of 2008?
That is not an entirely accurate comparison. There was a credit crisis at the time. It was simply impossible to get credit anywhere. In 2022, there was a sudden interest crisis. In the span of six months, interest rates tripled and reached 3% or more. Strong companies with a solid business case were still able to obtain funding. Things suddenly became much more difficult for project funding. This has relatively little impact on a regulated real estate company that is funded on a portfolio basis. Project developers are more likely to feel the effects.
Can we expect a turnaround any time soon?
Historically, a 3% interest rate is not unusually high for a German government bond. The free money will not return. It might still go down by 100 basis points, but no more than that. The 2008 crisis has taught us that the financial system needs two to three years to bounce back after an upset.
The fundamentals are good for logistics real estate. They are certainly much healthier than they were two or three years ago. The e-commerce sector continues to grow. At the same time, we must also be honest. Looking at the macro-economic and geopolitical climate, we should certainly not expect a spectacular recovery of the whole real estate market in the next six months. That is especially true for listed real estate. What can and will help us is a lower interest rate. It will establish a baseline for listed real estate. In late 2024, Montea’s share price is the same as it was two years ago. At the time, inflation was at 10% and the interest rate was 4.5%. Today, the inflation is largely under control and the interest rate has already dropped to 3.4%. The one-to-one ratio between interest rate and share price has already been broken – but for how long? Especially because the money has been redirected – temporarily? – to the US. This does create opportunities for those with cash in hand today.
Europe’s macro-economic difficulties will not be solved overnight. A German economist said that they expected Germany to need five years to recover. Germany is still the driving force behind Europe’s economy.
No one knows what the future holds. However, you can use scenarios to help you prepare for the future. What scenarios are you looking at?
We have complete faith in the things we have under control today. We have the land and we have the permits. We do not doubt the demand for logistics real estate. But what if the share remains listed below its NAV and it is difficult and especially not appealing to raise additional capital? In that case, you must dare to ask yourself if you should start rotating certain assets. If you have assets that you can develop at 7% and sell at 5%, it might be best to sell them and reinvest the money instead. That is not the standard scenario for us, however. We expect the interest rate to go down, to be able to continue offering excellent occupancy rates and great stories and maintain our growth, as well as raise additional capital. For this, we will mostly rely on foreign investors.
Will 2025 be a better year?
For two years now, no decisions are being made. Many things have been put on the back burner. You cannot keep doing that indefinitely, however. Especially in the residential market, which faces demographic pressure, nor for logistics real estate, given the continued rise of e-commerce. Those things cannot be put off forever.
What are Montea’s trump cards?
Montea’s debt ratio is well under control at 34%. Although the days of free money are over, our average financial cost will still be 2.7% in 2027. Like most regulated real estate companies, we are well covered. Back in 2021, many Anglo-Saxon institutional investors believed it to be excessive to cover ourselves for 100% against rising interest rates. Now, that turns out to be an exceptionally valuable asset.
Direct investors look at the fundamentals in the long term. Those are intact. E-commerce will continue to grow. Every one billion euro of additional e-commerce revenue requires an extra 100,000 m² of logistics real estate. As the supply of logistics real estate is hardly growing, that means rents will have to go up. Today, the yield of logistics real estate is lower than that of office buildings and I think that is fair.
An important asset is the fact that rents for logistics real estate have increased more than the inflation over the past three years. That is certainly not the case for all other market sectors. In a way, this increase makes sense. When I first started at Montea back in 2010, the average annual rent was €45 per m². In 2021, it was still €45. During that time, the yield dropped from eight to four percent, however. Afterwards, when the yield began to grow again to five or six percent, the balance could only be restored by increasing rents.
Sustainability remains a big advantage that we must continue to focus on, as does anyone who deals in real estate. Even though there is less demand because of institutional investors, such social developments cannot be reversed. Eighty percent of our developments are grey- and brownfields. There are still myriad opportunities to partner with governments.
Doesn’t the poor economic climate scare you off?
We work for a number of sectors where consumption will continue no matter what. After the pandemic, stock levels increased exponentially. These have since been normalised. That is why we feel good about 2025.
Reshoring and nearshoring will mostly affect Eastern Europe. More important is the fact that e-commerce has a 14% market share in Belgium. In the UK, it is 28%.
The Netherlands is moving away from its darling of logistics real estate…
In the Netherlands, logistics real estate fell victim to its own success. According to a Greenstreet study, the Netherlands has gone from being an example to the most stringent country in all of Europe when it comes to obtaining a permit. That can and will have a positive spill-over effect for Flanders, Belgium and even the north of France.
What is the advantage of a crisis for you?
The big advantage of a crisis is that it makes it easier to distinguish between A-, B- and C-tier locations. That is true for virtually all sectors. In late 2021, everyone was looking for storage space. We were offered many C-tier locations. “Everything’s completely full.” But when the tide turns… Today, we have a 3% vacancy rate for logistics real estate in Belgium. That figure has tripled in just one year’s time. Yet for the Brussels-Antwerp axis, it is 1.5%, while Charleroi has a vacancy rate of 12%.
What is most important to you in the longer term?
Investing in land banks that we believe have development potential in the years to come. These are mostly old industrial sites, many of which are being often offered for short-term lease at the moment. Although that is not something you want to put on the cover of your annual report, they offer fantastic development potential. Today, our land bank is 2.7 million m². Land is our only resource. We must keep supplying that source.
More industrial sites are becoming available. Van Hool, Audi,… Of course, the market has its limitations. Audi, for example, measures sixty hectares and it is not evident to absorb such a large expanse, especially in a complex area.
We are also keeping a close eye on technological innovations. We are particularly interested in automation and robotisation and electrification, not just for AI but also for mobility.
