Warehouses De Pauw SA (WDP) Earnings Call Transcript & Summary

Good morning, everybody. Welcome to the Q3 results of WDP. I think I can say, again, a perfect blend. Indeed, [ today ] create value with all our drivers as we have foreseen in our plan. First of all, of course, our earnings per share are fully in line, and we are on the right way to the EUR 1.47 for the end of this year, which gives us a growth of 5%. And until today, we added EUR 600 million of value to our balance sheet, which let it grow up to EUR 4.7 billion. And still, we have a perfect balance sheet, super strong, liquid, with investment potential, thanks to our permanent matching principle of debt and equity with acquisitions like Q3: 2 nice deals, one in equity, one in debt. So based on that, and we can grow further. And yes, we realized again a very nice -- totally, we realized this year a very nice growth again globally, EUR 600 million this year, of which EUR 100 million included in Q3, and of course, based on a very good and high-quality portfolio with a high and stable occupancy rate of 98%. And if we look then to our growth, our new investments. At the end of June, we were at EUR 500 million, and now this quarter, we could add another EUR 100 million: 2 nice deals, one in Belgium, one in France, one in debt and one in equity. So -- and of course, the third quarter is always a little bit less -- there's a little bit less activity due to the summer holidays. But it stays a very nice package let's say, with all kinds of investments. It is really a blend of everything. That's showing that, yes, we can do -- in every market, in every segment, we can create value and we can do things. And yes, of course, today, we still have new developments, but less than the last year, which is normal because there are less developments in the market. It's not that we do less developments. There are just less developments due to the fact that we are still in a little bit uncertain economic times and that people are, let's say, thinking twice before taking a big investment and a big decision with a big impact. And yes, even when you want to move, you still can always stay 6 months, 1 year longer in an existing building. And if you need something extra, you can rent something temporarily with your neighbor. So that's normal for the moment in the cycle. But then it's time to buy. So yes, it is time to do acquisitions and to realize value and to create value with acquisitions. And so typically, depending on the cycle and on the moment in the cycle, we can generate cash return and total return, so by doing and adding what we always did. And this brings us to #BLEND2027, indeed creating value with all our drivers. And that's very important, and it's really as we had foreseen at the end of last year when we prepared this plan. It is really about multiple drivers in multiple markets. That's WDP. And that's what we have always been and always done, looking where and how we can create value. And of course, this is built on the markets. And there, we can say that indeed, we still see structural demand for logistics space and warehouses staying there, and there are sound market dynamics. But indeed, on the short term, we have some extra work, and we are at the end of the cycle and we see stocks bottoming out. So I would say, as normal, we need to go back to work like pre-COVID. So we need to work extra. And yes, this year, there, let's say, we had some less retention after normally 90%. It went down to 80% because some people, mainly driven by consumer markets, had some less stock and where -- and the possibility to give it back. But let's say, this is only 1% extra work or 100,000 square meters. And so this is, for us, let's say, normal procedures, the normal things we need to do. And don't forget, and we are deep in the markets, and that's always the reason why we want to be deep in the market and knowing what's going around. For example, we have a small site neighboring -- in the neighbor of Brussels with very nice mezzanine, plus an e-commerce player who consolidated in another country and, let's say, who get back the site. But it was with a unique -- let's say, we had a unique selling proposition, a very nice building, good location with a mezzanine inside. And yes, that takes some time. You need to find the right client. But then if you can find it, then it's a win-win-win for everybody. The former clients don't have to demolish the mezzanine. The new one can start faster directly using mezzanine without having to invest in it. And for us, it gives us -- it puts us in a better position to discuss about price. But for that, you need to be deep in the market, know your markets and, indeed, work hard for it. So some work, but let's say, for us, business as usual. And besides -- and based on that structural demand, we still can continue to grow. Like I mentioned, we could realize EUR 600 million of new investments at an average yield of 7%. And while new demand for new developments are there, then we still have a very nice land bank with a nice potential to develop again. And besides the value creation, externally, we also have of course our fantastic portfolio where we can work on and which generates also value, by which we can create value with still indexation of all our leases with around 3% and positive rent reversions for 15% for around 300,000 square meters. And even with the new indexations and the rent reversions, we are still 12% below market rent. So there is still a way to go for further value creation. And in the meantime, we continue, of course, by rolling out our PV installations and our energy solutions further to our clients. And we can do all this, like I said in the beginning, thanks to our balance sheet with a lot of potential in it. So we can let our balance sheet work and put it at work. All of this comes together in our leading indicator, annualized rent, where you can see what we realized and what is still coming in. And so I can say we are on the right way to get our earnings per share target of '27 with the existing portfolio and external growth. And in the short term, of course, we can confirm our guidance and the outlook for '24 and, of course, the one for '27. So as a conclusion, I can say that based on 3 things. Occupancy, there we are back to normal and ready to do what we have to do. And it's one of our core competencies, already more than 40 years. And yes, we can continue to grow. It's time to buy. And we can do it because we have the possibilities within our balance sheet. So this is, in short, what we want to tell, and now we are open for your questions, which will be organized by Alexander.

[Operator Instructions] We have first question coming from Rob Jones from Exane.

Great. Cheers, guys. Can you hear me okay?

Yes.

Perfect. It was just one on -- there's a couple of times in the release, you talked about a slowdown in tenant demand. And obviously, that as you highlighted affects two things: one, both tenant retention, and obviously thinking about 2025 would be interesting in terms of feedback around that tenant retention expectation; and secondly, around development pipeline. The stocks -- amongst my stock coverage, the worst performer so far today. And I wonder if it's linked to that point. So can you give any detail or color on quantifying how much of a slowdown you are seeing in terms of tenant demand and why you think it's cyclical, and thus, why you think it does pick up in future? Because that's definitely what we are receiving in terms of investor feedback and concern regarding both yourselves and, indeed, the wider European logistics sector.

Well, I think first, yes, we all -- like I mentioned, we are at the end of the economic cycle. And we, as a warehouse sector, we are late cyclical in the beginning of the cycle -- of a downward cycle. There is still too much stock and, let's say, our clients sell less. So they have some surplus stocks. And the utilization degree of our warehouses went up to 120%. And now by the end of the downturn, then let's say, people are selling their overstock and they are getting back to normal and even, of course, at the end of the cycle, a little bit lower. Now you are -- from an internal utilization degree of 120%, you went down to 80%, 75% where, let's say, a normal usage is 90%. But of course, this is not a one-on-one impact on our occupancy rate. And there, we are protected by our long-term contracts and also the fact that, let's say, client knows that due to the general scarcity of new positions in the market, that they try to keep, let's say, their space as long as possible and try to find internal solution before they want to give it back. Because the risk is when they give it back, that they never can, let's say, take it again later on. And very important is that, in general, the occupancy rates are in the sector -- in the whole sector are very high. Here in Western Europe, you speak about, let's say, a vacancy between 2% and 3% in the market. Even Romania is below 5%. And there are almost no new constructions and no, let's say, unleased or unlet projects coming on to the market. So for the whole market, let's say, there we have a very good normal market or even a better than a normal market, right, because there is almost nothing available. But yes, sometimes, for example -- and that's a typical Belgium example. Nike is selling not so good. Adidas doing better. But in Belgium, we have the warehouses of Nike. Nike is selling less. So indeed, Nike has around 300,000 square meters by themselves. They own that by themselves. And then they have some flexible contracts beside of, let's say, around 200,000 square meters. And yet now by selling less and by having adapted their stock, they will get back some spaces where they can. But also, in general, as we are protected by our, let's say, long-term contracts and the fact that, let's say, in general occupancy rate is at the same levels as our portfolio.

And just to add that on your question on tenant demand and client retention, what we said, Rob is for in the press releases that it would drop from 90% to 80%. That's our expectation for '25. And because we have a 6- to 12-month notice period. So in advance, we know it, and this is what we expect based on that for '25. So normally, each year, now at this moment in the year, we know that we have to release for next year 100,000 square meter, around 1%. And now it's 200,000 square meter, 1% additionally that we need to rent for next year. And then, of course, you have the risk being -- some temporary vacancy, but very manageable. But we are working on that, doing the normal leasing work again. But the opportunity is that you can increase your prices, of course, because it's under-rented. And then this is an easier discussion with a new tenant.

Yes. And in general, we can say that we are, let's say, for -- that we have good discussions with clients on all the buildings that, let's say, are free or coming free. So we have very good discussions and it is more about, is it the perfect place? Can I use the building? And we have, let's say -- and not about pricing. It's not a price discussion. On the contrary, when people can use it, they want to pay for it. But it is, let's say, back to normal, not more than that.

The next question is coming from Wim Lewi from KBC Securities.

I hope you can hear me.

Yes.

Okay. Perfect. I've got two questions. I'll ask them one by one. First question is on the investments, which you have announced of EUR 600 million, where 2/3 of those have been acquisitions, some of them high yielding like in Romania, some lower yielding in Western Europe like France, Germany, with reversion potential that then basically adds up to the 7% expectation. Now there is speculation -- and I also see the share price go down, maybe there is a link to some of the market rumors that you are in the market for the [indiscernible] portfolio, which I think would be if that's around market values around -- as big as all the acquisitions you have done so far. The risk there or the fear, I think, of the market is that it would be at low yields and then pulling down the 7% outlook. Is there any comment you can give on that?

Well, of course, let's say, we never can comment on rumors or, let's say, [ files ] who are for sale at the moment. Since in indeed, you know that you have to sign always NDAs. And of course, we have to follow those NDAs. We can say that indeed, like we mentioned before, that there are different files and that we see markets opening in France, less in Germany. There, the market is still closed. And -- but let's say, we hope by the beginning of next year that people -- and that even there in Germany, we will go up to, let's say, the starting point or 0.5% yield but let's say, it's taking a while in Germany. And yes, in France, there are different possibilities. But I can just, let's say, repeat what was in the article on Friday, some weeks ago, that was that indeed Heinz is trying to sell his original sale and rent back with [indiscernible], that it is about 8 sites, that it is about, let's say, EUR 220 million and that the yield is above 5.5%. And this is, let's say, what was written in that article. That article mentioned also us that, let's say, it's up to them. But let's say it is -- that's what is in and okay, and let's say, it is a possibility, it is one thing on the market. So -- and if we would be interested, let's say, it is within our possibilities of the current balance sheet. But it is not. If you say that we are doing EUR 600 million, it's not EUR 600 million in that -- that article said it was EUR 220 million.

Okay. clear. It would be great if all people stick to their NDAs and would be a more efficient market. My second question is really on something that drew my attention. You mentioned that the 72% pre-let in the pipeline is a function of, amongst other things, but you mentioned specifically brownfields. Can you explain how that mechanism works, why brownfields have a negative impact on pre-lets?

Yes. I know it's not really about the brownfields. First of all, I think it is important to say that all the projects who are, let's say, finalized, that they were fully let. So -- and because -- and it is more let's say, due to specific reasons that sometimes we have to do, let's say, a speculative development. And that's one. One is, let's say, more small developments with multi-tenant possibilities close to the cities like, for example, Prinsenhil and The Bay in Breda. And that's really for urban logistics. . Well, there, if you don't start that development, you will never let something -- really people want to see the building that's, let's say, about the spaces less than 10,000 square meters. People need to see that and need to know when it will be available. So -- and there, we can say that Prinsenhil Phase 1 is now accomplished and fully let. And then indeed, we are starting now Phase 2 which is, of course, not pre-let yet because we just started the building. The same in Kerkrade. So it is, on one hand, smaller buildings, most of the time close to the cities. And on the other hand, on some brownfields, apart of the cleaning of the soil, it's indeed, let's say, putting concrete on the bad soil and then they say, look, we think that a warehouse is a good function on such location. And then as a final part of the cleaning of the soil, you need to put, let's say, concrete on it. You need to put a warehouse on it. And then most of the time like, for example, in Belgium, in Grimbergen when you can buy or get an agreement with the authorities to get -- in this example, it is a concession on that brownfield, then you need to promise that you will start up directly a development because the development is part of the cleaning. And so sometimes, then you have to -- let's say, you have to start up on a speculative way in order to finalize the cleaning of the soil.

So but as you said, all the developments that were delivered were fully let and all the developments you see in the pipeline under construction that are not yet fully let only have a completion date as from '26. So there is sufficient time to lease up that space, and we are confident in that.

Next question is coming from [ Gavin ] from [indiscernible]. Then we'll go to the next question from Steven.

I have two. So first, what can we expect for like-for-like growth in '25? Maybe you can break it down by assumption in indexation on CPI, but also the catch-up effect of rents that were kept in the high inflationary times, expected impact of renewals to be catched in '25. And maybe if you see a change in occupancy. That's the first.

There, Stephen, when you look at our portfolio, the geographical mix and when you look at inflation forecast today for next year, then the inflation should be -- the indexation part should be around 2.2% on the like-for-like impact. You know that we have a target of extracting over the time of the plan, EUR 1 per square meter over the entire portfolio on top of indexation, which translates into around 40 basis points per year additionally on top of indexation. So we are on track to realize that. And I leave in the middle the occupancy rate because we always give guidance for the next year at the occasion of the full year results. And you know we just mentioned the square meters we are working on for reletting. So -- but you can also see that it's manageable, and we have a good track record in reletting, so you can take your own assumptions in there. I think you have all the building blocks.

Okay. Very clear. And my second question is we've seen some below 5% yielding transactions in the Netherlands recently but your fair values for the current portfolio has been flat in Q3. I would expect a small increase in fair value. I don't know how I should look at that? And maybe also some comments where you expect fair values for the existing portfolio to go ahead in the next quarter or 6 months to go to.

Yes. We also see that clearly. And we've been seeing that also in the first part of the year that the values have clearly bottomed out, and what we see now in our portfolio, that values for the existing portfolio are definitely bottomed out and are even conservative. The revaluations we have were linked to development and also the acquisitions, which have had a good uplift on acquisitions in the last 12 months. And now it's probably also the cut-off point. We're starting to see some value increases in the existing portfolio, subject to the evolution of the rent cycle and more transactional evidence in the market of course. But as you know, valuations are always lagging as well. But we confirm that the view you have.

[ Gavin ]?

Can you hear me now?

Yes.

Two quick questions on your 2027 target. On Page 7, where you show the potential return slides, one trend we've seen in the U.S. this quarter is the decrease in reversionary potential due to market rents declining for the first time in a while? First question is, is this a concern for you at all to get to #BLEND2027 target? And then secondly, I think in your press release, you commented that customers are adopting a wait-and-see approach, which could delay future developments. I just wondered how sensitive is that 2027 forecast to a scenario where, let's say, demand for new development gets pushed back another 6 to 12 months? And then are there any workarounds that you can do to offset that?

Yes. I'll start. So on the 2027 target and sensitivity to the ERV side, that was your first question. No, there is no real sensitivity to that. We are confident that this will not have an impact, so we can be very clear on that. The second one.

And even, I would say, on ERVs, we will have the possibility to let our rents grow up to ERVs. Even when, let's say, within 2, 3 years, there should be a normalization or even a stabilization of the ERVs, we can still continue to grow because our legal systems are different than the ones in the U.K., for example, and we can just attract the gap much longer. It takes much longer it goes.

But we can do it more easily through indexation, of course, because we have good indexation clauses. And that's always the biggest impact, the indexation mechanism in Continental Europe, you index 100% of your existing leases and you renegotiate on the leases that come to a final end or when space is given back. So that's some color on that. And then on the wait and see on the developments, yes, there, we can do a combination, let's say, like Joost mentioned, of developments and acquisitions like we have always done.

Development, acquisitions, redevelopments in our loan portfolio, higher rents. Therefore, we made blend by saying it is not, let's say, not only one product out of our game. It's not only developments and it's not only the Netherlands, for example. No, it is really across the countries, across the sectors. And there, we have the advantage of being flexible and being active, let's say, wherever we can as a developer, as an investor, as a redeveloper, as value creating with, let's say, doing things with our clients together cross-border. So that's the big advantage that we are not -- that we have more than one driver. So we are, let's say, fully in line and very -- based on this and based on the EUR 600 million of profitable investments, we are really, let's say, very confident in our '27 guidance.

The next question is coming from [indiscernible] from [indiscernible].

I hope you can hear me now.

Yes.

Perfect. I just had one first question, coming back on the demand. Could you share your view on when you expect, I would say, market trends to go as from now, I would say, with the end of the cycle? And what type of requirements will you have to do to capture the reversion in the portfolio?

Can you repeat the last part, please? .

Yes. The question was, what will the effort will be to capture the reversion in the portfolio? I think that you mentioned lengthy, I would say, process, but do you believe that you will be able to capture everything in terms of reversion if there is further softening of the demand?

The most important thing in capturing the reversion is timing and contracts. We have, let's say, a lot of existing contracts that we have to fulfill. We have to, let's say, not only to fulfill NDAs, but also to fulfill our rental contracts. And so that's indeed the most important thing there is that we have to wait for the right moment at the contractual moment that we can renegotiate our leasings. But like Mick said, in the meantime, we have indexation that helps also. And there, by having a portfolio with 12% under-rented, we can still -- even after, let's say, 15% of inflation in the last years, we can still say that we can structurally capture inflation. And that's on 100% of the portfolio. We are under-rented, so we can capture structurally inflation. And then for the rest, we can higher the rents or let's say, when a client leaves the building or when he is at the end of the contract.

And on your question related to the evolution of market rent, we've come from double digit to mid-single digits to now low single digits, and we think it will grow more like in line with inflation that's from here. But there is still upward pressure and note that in Europe, the vacancy rates of the market are 2%, 3%. And when all the stock that is being built spec today would come to the market would only have an impact of, Alexander?

Less than 100 basis points. So in the end, [ Vivien ] the market remains very strong. And also just to add a general comment on the softening of demand. It is true that when you look at the 5-year figures that take-up is around 20%, 30% lower than the 5-year average. But if you take abstraction or if you make abstraction from the COVID highs between 2020 and '23, take-up is perfectly in line with historical levels.

Yes and indeed, in general, the market is still right and healthy. And if you look -- I take Belgium as an example, but it's for the whole market. Current rents are between EUR 50, EUR 52. The market rents of existing buildings are now around EUR 60. And for a new development, it's even EUR 70. So there, there are still the different step-ups. And so there, let's say, the potential of rent reversion is there and will stay there. It's not, for example, that you can now rent a new building at a lower price than for an existing building, which has been the case in our sector during some years, let's say, 10 years ago. So there, the trends are structurally healthy within our sector and that stays like it is.

Then I had a quick question on the competitive landscape with regard to acquisition in France. I think that more and more players are looking into nonorganic acquisitions and, I would say, putting pressure on price. I think that you mentioned that the portfolio was -- that [indiscernible] portfolio was maybe above 5.5%. I think that yield might continue to go down. And where do you see other opportunities? I would say France will start to, I would say, to be an acquisition around 5%. Is there other country that you see, I would say, you mentioned Germany, but other elements that we could consider of interest for you?

I won't comment, like I said on [indiscernible] because I don't know or -- so -- but in general, we can say that, let's say, the market is now in France between 5% and 7%, 5% for real core, core products. There, you are at 5% and the developments, they are at 7%. I think depending on how the market goes, there can be pressure on the 7% on the developments. But let's say, the 5%, the bottom is there. And for the moment, the bottom, let's say, is strong. And yes, then depending on the quality core, core plus the bigger the ticket decentralized, centralized, let's say, you have a variety and a spectrum between 5% and 7% yield. That's for France. And for Germany, let's say, there, people are now going up to the 5%. And I think you have seen last week after [ Exporial ] let's say, the opening of the markets in Germany, you have seen for the first time, I think, in 2, 3 years, deals of 5% or between 5% and 5.5% the first deals, let's say, who starts with a 5%. So that's also a sign that hopefully, we can also find there a new starting point of 5%.

Frederic, the floor is yours.

Can you hear me?

Yes.

Perfect. And just to come back on the slowdown of the market. So of course, you described a situation where the market is a bit slower than before, but we don't discuss yet potential bankruptcies in the sector. So I was just wondering how do you assess this risk in your portfolio today? And has the situation worsened off over the last 3, 6 months?

Fredrik, that situation has not changed. We analyze our tenant base very regularly and also note that in the growth of WDP, the quality has improved very substantially. And also the risks have been spread and more diversified across sectors, across companies. Note that our single building risk is less than 2%. And all the top 10 tenants are spread over multiple buildings, even multiple countries most of the time. When we make the assessment of our client base today, it has not changed from over the last couple of years with what we shared with you. Most of the tenants of our over EUR 400 million rent roll, the ones who have more than EUR 1 million rent, these are really big international companies. Plus when you look at them, the weaker parts and yes, the weaker part is the companies which are financially more vulnerable in the SME segment and who are exposed to more cyclical sectors like industrial, automotive, wholesale, nonfood retail, these are the ones that are a bit cyclical and so the SME companies within that segment, and that's around 5% of the portfolio. So that risk is very manageable. Today, we have a couple of them on watch list like we have all the time, but these are really in the smaller segment and more business as usual. And let's say, the tenant payment behavior hasn't changed and is very good and the quality of the tenant base is also very good. And note that also we have good protection in place, 6- to 12-month bank guarantee, corporate guarantees and -- and we have a good fallback of the quality of our warehouses, of course, and the fact that they are under-rented.

Maybe on requirements. More view on how it's going because is it a spot price and...

Sorry, Fred. Can you maybe repeat the question or put it in the chat because you're lagging a bit?

[indiscernible] I have some difficulty. I type the question on the chat.

Yes, put it in the chat. In the meantime, we'll cover the first question from Jon. We'll come back on your question, Fred.

Can you hear me well?

Yes.

I think you mentioned that clients are generally signing shorter leases. At the same time, you also say that occupancy is back to normal. Just to clarify, what is the average lease length that you're now signing on, on renewals?

The clients are not, Jon, are not signing shorter leases. No, that's not the case. Let's say, that sometimes, let's say, when existing client has a shorter contract, which was, let's say, in place before then, let's say, yes, like, for example, the case that I mentioned of Nike, that is they have 369 contracts. And they are now, let's say, Nike has probably, I would say, 10 contracts with certain parties, and they make that they have every year with a certain third-party logistic company that they can, let's say, build up or bring down a little bit every year and that they have a break every year that they have not all their breaks at the same time, like we are, let's say, when we hedge our position, we also have, let's say, different ending points. That is what Nike can do. Nike is doing 2. But there is not any sign or any client who is really -- there is no trend of shorter contracts, absolutely not. And our average duration is still 5, 6 years.

Yes, basically, 10 years for end users and 3, 6, 9 is typically for 3PLs and 5 to 10 in the Netherlands.

And globally...

Average first break 5 years. But yes, you should also take into consideration the historical lease renewal rate of 90%. And until end date, it's 7 years. So it's a very long duration and a very strong client retention rate and loyalty. So duration that they stay in the building even after the contract ends. And it depends just on the type of tenants, like Alex said, end users signed for 10 years or more. You can also see that in the pipeline, the average lease length of leases in the -- for the development projects is 10 years or plus. And the logistics service providers, they always sign shorter contracts, 3, 6, 9 or 5 plus 5. And then your part of your question, which was also why do you mention occupancy is back to normal? We wanted to highlight that the work of managing the occupancy is back to normal. What you had during the COVID years was really exceptional because then always in a big portfolio, we have some movement of tenants, tenants going out, tenants coming in, but the rent just continued. There was even no frictional vacancy related to tenant movement. And in every normal situation, you need to foresee 3, 6, 9 months of changing the tenants, et cetera. It just continued. And now we have to do the normal leasing work again like pre-COVID, working on the letting, doing the normal stuff and which is a core competency of WDP and its teams.

Very clear. And just on the 80% renewal rate that you mentioned for 2025. At the same time, you're also capturing 15% reversion. So do you expect this renewal rate to improve over the cycle? Or will it remain at this level as you're pushing rents here?

Yes, that will probably move back as the cycle changes positively again, then people will hold on to their space, of course, because do not forget when they need to lease it back, then it will be substantially higher price.

Substantially higher price. And don't forget, let's say, when people don't need, they don't want to move. They don't want to, let's say, go out of a building and come in a building because that asks a lot of CapEx and gives operational KPI problems or risks. Let's say, people, if they can, they just want to stay and to continue. It's asking money, time and adaptations to the operations. So it is not, let's say, pleasant or funny to give back something or to rerent it again. That's always giving, let's say, a lot of stress to our clients. So it's not that they like it.

I'm just going to cover the question from Frederic in the chat. So the question that he was having is on tenancy requirements and the discussions that we're having. He's asking whether it's a problem of price. And accordingly, do we see more and more that we have to give more rental incentives? Is there any incremental change? Or is the amount of investment currently too sizable in the current context for the tenants to make a decision? So by discussing with tenants, would you expect that the current easing of the monetary policy will have any positive effects for their decision-making?

Well, first of all, we can say -- like we said in the presentation, it's about do I need it, and it's not about pricing. It's not about pricing discussion. It is about, is it the right building on the right location? And then, let's say, most of the time there is only one possibility. There are no multiple possibilities for a certain building. So it's not -- it is a question about do I need the building and not about pricing. So there are not more incentives. And the second part...

Is the investment too big for them to make right now.

That's for new developments, not for existing, let's say, that's for most of the time when you are thinking about a consolidation or a new entering a new market or then when you want to enter a new market and you need a new warehouse or you want to consolidate That's, let's say, always an important moment in a company, and that is asking a lot of investments in people in, let's say, in the organization. And then when there are uncertain economic times, you always can wait a little bit. And then people are indeed waiting -- waiting a little bit until they see more clear into the future. And of course, with rates coming down, this can help them to decide also when, let's say, their working capital comes down, yes, then it is more easy to speak about more stock or stocks to go into a new market, for example, but this will take some time, like the negative effect of rate hikes is lagging also the positive effect of rates coming down takes a time. And we think that, let's say, that will take another 12 months before we will really feel the new rate environment.

And then another question is coming from Jonathan from Goldman.

Just wanted to expand on the new supply, I think you alluded to it earlier saying that you expected 100 basis points impact from spec supply. So can you please expand just on what you're seeing in terms of new supply, that risk that you see further and what you see from essentially people adding new projects or essentially new supply slowing down?

Yes. Maybe just in general to comment, Jonathan, on the different markets. So when you look to the Benelux, the Netherlands and France, there you see that vacancy rates currently spot are at 2.5% to 4.5%, 4.5% in France and 2.5% to 3% Benelux in the Netherlands. And when you look at the current supply that's coming on the market, there you see that on average, 80% is pre-let -- so if you would take into consideration the 20%, which is currently built on a speculative basis and there is no net incremental demand anymore, that would have an impact of anywhere between 50 to 100 basis points on the existing vacancy rates. And looking forward, there is no clear indication that supply will significantly increase over time.

Yes. Pipelines are shrinking.

Some of the pipelines are, let's say, the development pipelines at risk, speculative are really coming down very fast, and there is let's say. So that's, let's say, the big advantage of our sector is that you don't have to decide 5 years ago about building a new development, we are still, okay, it is not within 12 months anymore. It has taken 12 to 24 months. But we still -- in our sector, we and our colleagues can still go forward or stop very fast. It's not like in the office or in a commercial center, when you decide about a big office development or about a new commercial shopping center, that takes years. And even when the cycle turns, you cannot change your plans. But we can -- we, as a sector, let's say, we can change our plans very fast and adapt easy to the market evolutions. And that has always been the case, let's say, as far as I have been in the sector already for 25 years, this has always been the case. So we can adapt very fast, which makes that occupancy rate, look at our occupancy rate over the years, we are on average at 98%. So even there, and we have had cycles during the last 25 years. So we have always had a very stable occupancy rate through the cycles.

And maybe, Jonathan, also just to add, the 70 or the 50 to 100 bps supply in perspective, this month with 2 to 4 months of takeup on an annual basis in the markets.

Okay, Okay. and so the current level, if you look at the overall, not just the percentage on that, how much of that is as a percentage of the market?

Sorry?

I was just trying to quantify the existing supply coming to market, whether that's large or not. I mean, obviously, you said 80% is pre-let, which we appreciate, obviously, the risk is very limited on that. There's not a lot of spec. But is that a lot of space coming in? Or is that a limited amount of space, just what I want to know.

So that's basically the 50 to 100 basis points comment that I made is based on the total supply in these markets, respectively.

Sure. But if that's only 20% that is spec, right? It means that there is still a fair amount of supply coming through?

Yes. So that question, sorry. So when you look -- so differently, when you look at the total supply, taking into account the pre-let and the spec, there you typically have around 2.5% to 3% that's currently under development. So that will be added to the total supply on the market.

And how is that comparing versus historic levels?

It's in line. It's actually coming down a bit. And that's something that you see that the current cost of capital, construction costs and permitting and scarcity of land is currently also restricting new developments. There are no further questions. So I will hand over the floor to Joost for final comments. But just a final comment from [indiscernible]. So maybe to summarize, end of the cycle, market is less buoyant. But after all, little figures -- little or no impact on WDP figures?

Yes. Indeed. So I think -- thank you, [ Gert ] So you made my conclusion. So indeed, I can think we are very comfortable. Yes, we are, let's say, structurally, the long term stays positive. We are at the end of the cycle. So we are -- and then which make that we have to work as usual within our core competencies, but we are very confident for the short term and the long term. And indeed, occupancy, let's say, we work on it, but back to usual, we can grow further. It is time to buy. And we have, let's say, a very good balance sheet in order to realize all this. So thank you. And let's say, we still have almost -- we still have 2.5 months to work further to all those very nice projects. Thank you all, and see you soon.