Developers are showing signs of restored confidence in the market and as a result there are more speculative schemes in the pipeline, according to King Sturge’s latest research on European Industrial Property Markets. Much of this is fuelled by demand levels from occupiers, which has been propped up by consumer spending over the last few years. ‘Supply has also responded to the upturn in occupier avtivity and a renewed confidence among developers has started a number of schemes across Europe – a significant number are due to complete in 2007.’
France saw good occupier demand with emerging locations such as Bordeaux (demand up by 43 per cent) attracting more interest than more established locations such as Lyon (demand up by 13 per cent). Atisreal’s latest research on the French warehouse market concurred that Bordeaux was an area to watch, although it said: ‘There were some fine rental deals, although these have not prompted any new warehouse construction just yet. Nevertheless, some new projects have been announced.’
The strong economic prospects of the Spanish market have been particularly noteworthy, said King Sturge, with some 100,000 sq m of new logistics facilities finished during 2006 and another 1.1 million sq m under construction in Madrid alone.
Looking to Central and Eastern Europe the most active regions have been Czech Republic with 700,000 sq m added and in Poland where 560,000 sq m has been completed.
‘Despite this,’ said King Sturge, ‘vacancy generally dropped across the Central and eastern European markets.’
With this in mind King Sturge looked at rent levels and suggests that rents are likely to increase in Barcelona due to constraints on land for development.
Robert Agreda of King Sturge in Spain reported: ‘Rents have been increasing during the last three years in all prime logistics locations. Several high rental transactions in the locations around the A-2 (Barcelona Highway) have pushed up the rent levels in these locations. Around Coslada, near the Barajas airport, rental levels have seen an average increase of 6.5 per cent over the last three years. Current rents in the area are around €86.5 sq m a year.’
A similar increase is also expected in Lyon where lack of land could push up occupancy costs from €56 per sq m a year.
Rents in locations such as Prague in the Czech Republic and Upper Silesia in Poland remain stable despite demand as there is still plenty of supply maintaining a downward pressure on rents.
Heathrow remains the single most expensive industrial location, not just in Europe but globally, with total occupational costs just shy of €250 per sq m a year. Dublin boasted a total occupancy cost of €200 per sq m a year with Moscow in at just under €150 per sq m a year.
Looking at the industrial market in Moscow, King Sturge reported that it has seen significant growth during 2006 with the development of new international grade properties coming onto the market.
Demand is still higher than supply for grade ‘A’ warehouses, but rents are already close to stabilisation at €143 per sq m a year. During 2007 there are plans to build more than 1 million sq m of class ‘A’ warehouse in the Moscow region and a further 500,000 sq m in St Petersburg, reflecting a growing trend for further regional expansion in Russia.