OCCUPIER COST-CUTTING RAISES STAKES FOR BEST QUALITY INDUSTRIAL AND LOGISTICS SPACE
A TWO-TIER INDUSTRIAL AND LOGISTICS MARKET EMERGES ACROSS EUROPE
London, 25 March 2009 – Demand patterns for industrial and logistics property are increasingly being driven by the need for occupiers to cut operating costs and increase building efficiencies, according to a new market report by CB Richard Ellis. Against a backdrop of weakening demand for their products and services, occupiers are rationalising their use of space, seeking to restructure leases, sub-let excess space or upgrade to better premises that will enhance overall business operating efficiency.
With the main economic indicators that are relevant to the industrial property market – including capital investment and consumer spending – expected to turn negative in 2009, cost reduction strategies are high on the agenda for many occupiers. For manufacturers, this stems from the need to address excess capacity and weak price trends for many products, while distributors are increasingly looking for efficiency gains across the supply chain. This trend is resulting in generally slower leasing activity and reduced demand for industrial and logistics property, but is also driving demand and competition for the best quality space.
The quality and flexibility of buildings are also key influences on corporate costs and efficiency. CBRE’s latest Industrial and Logistics MarketView report found that well-located properties with the greatest potential for flexibility and adaptability are enticing occupiers and pushing demand for efficient buildings. Many companies, even in mature markets, still operate from outdated premises, further fuelling requirements for more efficient industrial and logistics space, even in an environment where demand is generally slowing.
Guy Frampton, Head of EMEA Industrial and Logistics, CB Richard Ellis, said: “Occupiers of industrial and logistics space are looking for flexible, adaptable buildings which will help to drive efficiencies and reduce operating costs. A two-tier market has emerged in some European markets as rents begin to rise for tailor-made facilities, despite an overall rental rate downturn on existing buildings last year. "
Retail-led activity also continues to drive the logistics markets, with demand remaining comparatively stable in staple goods sectors. “Certain sectors of the market are still very active, such as food, household consumer products and data/file storage, and these are requirements which are better suited to purpose-built facilities,” added Frampton.
Germany, one of Europe’s most mature logistics markets is an example. Leasing activity is generally weakening, but also becoming more tightly focused on the main markets and the best buildings. Here, demand for large-volume space remains fairly stable. Along with rising yields and expensive financing, this is pushing up rents for new build-to-suit space. rime rents in the principal locations can reach €70 sqm per annum.
Industrial investment yields across Europe rose over the course of last year by around 100 basis points, producing downward pressure on values and deterring speculative development in all markets. The result is upward pressure on rents for build-to-suit developments, which have become the only way of acquiring large-unit space in some markets.
“Rising yields have put upward pressure on rents and downward pressure on land values. The challenge for the occupier is to find developers with the ability to carry out large-scale development in multiple markets, in order both to take advantage of such cyclical demand as exists now, and secure premises that will serve their business needs over the medium to longer term,” Frampton concluded.
Garrett McClean, Director of Industrial Agency at CB Richard Ellis Ireland said, “Although there have been a number of significant letting transactions in recent weeks, there has been a significant decrease in transactional activity in the industrial property market since the beginning of the year,primarily as a result of a lack of bank funding and deteriorating
economic conditions. As a result of weak demand, industrial rents and capital values have come under some pressure, particularly in secondary schemes. There has also been a notable increase in demand for short-term lettings, as prospective tenants remain generally cautious regarding the immediate business climate outlook.”
Director – Industrial
CB Richard Ellis - Ireland
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