According to property pundits across Europe, despite a more subdued level of activity around the world following the recent tangle in the finance markets, occupiers of warehousing are looking at increasing rent levels.
The good news is that the increases look set to be only marginal. However, Ross Moore of Colliers pointed out that: ”Europe is home to some of the most expensive warehouse rents in the world with London”s Heathrow submarket holding the title for the most expensive warehouse space in the world at €16.85 per sq m per month. Continuing the world rankings, in fifth place was Oslo €10.43 per sq m per month and in sixth spot was Dublin at €10.42 per sq m per month.
Jones Lang LaSalle in its most recent European Logistics Report noted that in 2007 warehousing take-up increased to a record 14.5 million sq m across Europe, compared to 12.2 million sq m in 2006. While the highest growth rates of take-up were recorded in the Central and Eastern European markets, the ”Big 3” – Germany, the UK and France – A potential warehousing pipeline of over 11.5 million sq m is due to come on line over the next twelve months. The highest supply will be built in the CEE, driven by Russia, which has nearly 1.4 million sq m of new floor-space in the pipeline. accounted for nearly 44 per cent of total take-up in 2007.
Construction activity remained buoyant in 2007, up 18 per cent over the previous year, with approximately 10 million sq m completed. Russia recorded the highest new supply in 2007 (1.7 million sq m); followed by Germany (1.5 million sq m), the UK (1.2 million sq m) and Poland (1.0 million sq m). Very few markets saw declining construction levels.
The report says: ”A potential warehousing pipeline of over 11.5 million sq m is due to come on line over the next twelve months. The highest supply will be built in the CEE, driven by Russia, which has nearly 1.4 million sq m of new floor-space in the pipeline. However, the core Western European markets currently record a pipeline nearly as strong as the CEE markets. With a potential of 1.5 million sq m, Germany could see the highest levels of new build in Europe in 2008.”
On the rent level front, while Jones Lang LaSalle”s prime warehousing rental index edged up by 2.3 per cent over the year, rental levels are decreasing in many secondary logistics hubs, and a general conversion of rents is seen in these markets. Jones Lang LaSalle anticipates limited rental growth in 2008 as occupiers are under pressure to cut logistics costs and are passing pressure on to landlords.
Rainer Koepke, a regional director in the Jones Lang LaSalle industrial team commented: ”Occupier demand remains robust, but high completion figures and the large pipeline are contributing to increasing warehousing supply. We expect speculative construction to be even more limited during 2008, with the majority of developers building only on a pre-let or built-to-suit basis.”
Looking ahead Mr Koepke added: ”EU enlargement, the globalisation of the supply chain, growing trade flows from Asia and changing customer requirements are driving the European distribution warehousing market. A number of new markets are emerging on the radar screen of occupiers, developers and investors. These include Romania, Ukraine, Greece and Turkey amongst others. While activity in these markets continues to be limited, a modern distribution warehousing market is gradually emerging backed by growing economies and a strong retailer market. We expect interest in these markets to increase further in 2008.”