Falling labor supply across Europe is jeopardizing the rapid growth of the continent's logistics sector, with occupiers regularly citing labor shortages as their single greatest problem, and developers such as Prologis Inc. designing assets to help occupiers attract and retain employees.

Senior industry figures underlined the problem repeatedly during two separate panel discussions at the MIPIM international property conference and exhibition in Cannes, France. Raimund Paetzmann, vice president of corporate real estate at Berlin-based e-commerce company Zalando SE, said the problem was so severe that logistics operators in Romania were recruiting workers from Vietnam.

The unemployment rate in the European Union, composed of 28 member states including the U.K., which is in the process of leaving the bloc, stood at 6.5% in January, according to the EU's statistics service Eurostat. Unemployment in the region has fallen steadily from a previous peak of about 11% in 2013.

Senior figures in the European logistics industry discuss the problem of labor shortages at MIPIM in Cannes, France. Source: S&P Global Market Intelligence

Ben Bannatyne, president for Europe at U.S.-based logistics landlord giant Prologis, said the labor shortage had become the "No. 1 pain point" for occupiers. "It's really been in the last two years that labor has become not just a cost issue but an availability issue," he said. "And we are literally hearing about this every single day from all of our customers."

Participants in the panel discussions at MIPIM said access to labor was the most important issue for occupiers when deciding where to locate their logistics operations.

The European logistics sector has grown rapidly in the last decade, driven by the boom in e-commerce. Demand for space has fueled record rents and investment in logistics real estate, Cushman & Wakefield said in a report for the first half of 2018. The average yield on European logistics property fell below 6% for the first time since the firm began consistently tracking the metric in 1992.

The EU logistics sector employs 3.3 million people, according to a policy document on managing the labor shortage presented by Prologis at MIPIM. About 150,000 people work at Prologis properties in the EU, it said.

Prologis, which has a 16 million-square-meter European portfolio, is investing in the development and refurbishment of its properties to add features that help occupiers attract and retain talent. These include amenities such as outdoor soccer pitches, country parks adjacent to properties, and restaurants and food trucks, according to a presentation by Dirk Sosef, vice president of research and strategy at Prologis. Other "tactics" include more attractive building characteristics, improved transport connections, and career and community commitment, he said.

"There's not a huge amount as a property developer we can do about supply of labor. What we can do is be in the right locations," said Bannatyne. "[And] we're continuing to invest in innovation and new ideas in order to help our customers with the retention of their labor force."

The labor shortage is prompting occupiers to take a greater interest in premises with significant automation capabilities, the panelists said. "Developers willing to invest in automated systems will have an advantage," said Wulf Meinel, CEO and managing director of Frasers Property Ltd. subsidiary Frasers Property Europe, a Netherlands-based logistics landlord with a €1 billion portfolio primarily located in the Netherlands and Germany, according to its website.

Still, the demand for such advanced technology has completely changed the nature of investment in the logistics real estate segment, he added. "What was originally a very simple big box investment is becoming more and more a sophisticated real estate investment."