The property market is on the up. That’s the main thrust of research by distribution sheds agents across the Continent.
According to property consultant King Sturge’s 2004 European Industrial Property Markets report, the decline in manufacturing across Europe, as it bleeds away to the Far East and other locations with cheaper labour, is leading to a shortfall in demand for storage space of goods used in manufacturing. This is being more than made up, however, by demand for storage space for imports.
King Sturge puts average vacancy for industrialclass property across Western European city regions at just 6.3 per cent, which is low for this stage in the economic cycle, compared with the early 1990s. Newly-built industrial property has a vacancy rate of less than 20 per cent and King Sturge expects this figure to narrow further and rents to rise as occupational demand improves. It says the low point for industrial rents in this economic cycle has now passed. In line with the forecast recovery in the European economy, occupational demand is expected to increase gradually in 2004 and more rapidly in 2005.
Property consultant Jones Lang LaSalle reports that logistics operators continued facility expansions throughout the last part of 2003 but manufacturers and retailers were also increasing their distribution space requirements. As a result, the number of development projects increased significantly during the final quarter. Several major projects are underway with France and the United Kingdom seeing most of the renewed activity.
JLL says that the trend for occupiers to require larger logistics centres of over 20,000 sq m has not diminished with the recent economic slow down, especially in emerging centres for logistics operations where large plots of land are still available for development.
In its 2003 European Distribution report, property consultant Healey & Baker says that an increasing number of manufactures are choosing lower cost areas of Europe to the south and east for production and assembly which will impact over time. Moreover, the northern Mediterranean port areas such as Barcelona, Genoa and Marseille are emerging as major logistics areas, driven by the growth in traffic to/from south east Asia, while the emerging distribution locations in the Czech Republic are comparable to some of the better western locations.
Healey & Baker adds that the markets of Central and Eastern Europe still have huge potential to become more important distribution markets, with their large consumer base and still lower operating costs. Poland, the Czech Republic and Hungary have continued to attract increasing number of distribution companies. Manufacturers are consolidating to cheaper Eastern European locations, and an emerging trend is for dictating that they must occupy space in dedicated supplier parks.
It’s not all good news, however. King Sturge’s predictions include a warning that logistics space will not perform as well as some parts of the industrial property market. It also says that property market activity, both level of demand and new construction, is modest in Central Europe, Greece and parts of France, modest or weak in Italy, United Kingdom and Spain, and weak in Germany, Netherlands, Switzerland, Belgium, Denmark and Ireland.
King Sturge’s research is out of sync with the findings of Schneider Logistics, which reported a survey of French carriers in the second half of 2003. Schneider revealed ‘considerable drop in volumes’ of work in the UK and the Netherlands, stability in Germany and Italy, and ‘considerable increase in volumes’ in Belgium and Spain.
Spain sees Gazeley Properties massive development on a 377,899 sq m site at Zaragoza, which will cost the developer $30 million to build out and will open next year. Based on its Magna Park brand, which it is rolling out across Europe, sheds will range in size from 10,000 to 30,000 sq m.
In terms of French logistics operator confidence itself, the steady rise in the share price of Norbert Dentressangle, speaks for itself.
Schneider’s survey of the Netherlands logistics business found that consumer confidence is as low as it has been for 20 years – and dropping. As a result, trade volumes are falling off and transportation activity is decreasing. Carriers have been forced to not fill vacancies and to let people go. Some 14 per cent of Dutch carriers told Schneider they had shed staff. Another 25 per cent of carriers have sold equipment or put it out of service temporarily.
King Sturge reports that prime industrial rents averaged across Western European city regions have fallen three per cent over the past year but are unchanged over three years. The highest industrial rents are in London (€168 per sq m pa), Dublin (€120 per sq m pa) and Geneva (€116 per sq m pa); the lowest are in Liège (€35 per sq m pa).
In Central Europe, prime industrial rents when averaged across regions have fallen by 14 per cent in the past year and by 19 per cent over the past five years. Rents have fallen the most in Warsaw (to €37 per sq m pa), where rents are priced in US dollars rather than euros. The average prime industrial land value in Western European city regions is €211 per sq m, while in Central European city regions it is €49 per sq m. The highest industrial land values are in London (€675 per sq m), Frankfurt (€550 per sq m), Munich (€550 per sq m) and Barcelona (€520 per sq m); the lowest are in Bordeaux (€20 per sq m), Bucharest (€25 per sq m) and Liège (€29 per sq m).
King Sturge’s so-called ‘Occupier Eureka analysis’ indicates that the more cost-effective regions for occupiers are in Central Europe (Warsaw, Bucharest, Budapest, Prague), regions of France (Bordeaux, Lille, Lyon, Marseille, Strasbourg), Belgium (Antwerp, Brussels, Liège) and large northern European ports (Antwerp, Rotterdam).
In general, if you’re building, look for areas of high population. The largest markets remain Paris Ile-de- France, Düsseldorf/Cologne/Essen, London/Birmingham/Manchester, Milan/Turin and Madrid. Other large markets include the regions of Rotterdam, Hamburg, Lyon, Barcelona and Antwerp.
That’s what ProLogis does. ProLogis remains the model logistics developer in Europe. It’s pushing it’s ProShed fast build programme which it pioneered in Poland and is now rolling out across Europe. It is also signing deals with logistics operators across the Continent – deals that ProLogis prefers to think of as ‘partnerships’.
ID Logistics in France has taken its fifth property from ProLogis and its third at ProLogis Park Clesud in Marseille. The latest deal is for a 26,224 sq m distribution facility and brings its total occupancy at Clesud to 74,978 sq m. ID Logistics also has ProLogis buildings in Orleans at Meung-sur-Loire; in Paris at Servon; and in Cavaillon, near Marseille.
In Germany, C&A has taken a 5,500 sq m facility at ProLogis Logistic Park Muggensturm in Stuttgart to add to the 6,700 sq m unit it has there already. Located adjacent to the A5 highway, the park currently has two buildings totalling 24,200 sq m of distribution space. Rhenus AG is the other occupier.
A logistics company that ‘partners’ rather than exploits is Exel. Following a busy 2003 which saw Exel acquire Italian logistics company Cappelletti Spaand and take on the activities of German-based heavy lift cargo operator Translast Transporte Engineering, it won the Philips Medical Systems logistics contract which allowed it to open a new, hitech shared-user site at Eindhoven Airport in the Netherlands. Exel took the 22,000 sq m of space at the Silver Forum Business Complex from developer Brabavast. The other client contract it runs from there is for ASML. ‘We decided to call in a logistics partner,’ says John van Dalen, vice president for customer support at PMS’ Logistics International.
Healey & Baker highlighted air freight volumes in its report, which have tripled over the past 20 years in Europe, and look set to exceed passenger growth in the future. The air freight industry is benefiting from the increasingly time sensitive nature of the logistics industry, and from companies wishing to streamline their supply chain to reduce the amount of stock held in warehouses. The busiest airport in terms of cargo handled is now Frankfurt airport, which has overtaken London Heathrow. The development of more cargo only hubs may emerge to avoid congested passenger hubs, and to enable freighters to make night-flights away from areas of high population density.
Sea transport is still one of the most effective ways to transport heavy goods,, says Healey & Baker’s report and the sector has witnessed an upwards trend over the past decade. The English Channel and the North Sea are among the busiest sea lanes in the world, and Rotterdam is Europe’s dominant port. It has the highest total throughput of any port in the world, meanwhile the port of Antwerp has the highest centrality index of all European ports.
But Healey & Baker admits that road transport is still the dominant means of transport in Europe, accounting for around 70 per cent of all freight movement in the EU 15 countries.
Its popularity continues to increase owing to its flexibility, and volumes transported are rising steadily. Since the sector was completely liberalised, competition has been increasing with many distribution companies operating on a pan-European level. In Europe, Germany, France and Italy carry the most road freight and these countries have some of the highest road densities in the world.
Boom and cost reduction
Boom it may be – but what it’s really all about, however, is cost reduction, says Exel. It carried out a survey of 27 of its UK clients in its ‘Industrial’ sector which works with major utility and public transport providers, construction-related companies, engineering and packaging product manufacturers. Nearly a quarter of them put cost reduction as one of their top three logistics pressures imposed on their businesses by their marketplaces and customers, ahead of shorter delivery times, service performance levels and flexibility. The companies surveyed were also asked to identify the most significant changes likely to affect their businesses over the next 18 months.
The factors most often cited were: dealing with company growth, driving down costs and, as customers become more pan-European, the need for Europe-wide logistics solutions. ‘The type of companies we questioned in this survey usually work within complex supply chains which, historically, may not have been seen as core contributors to efficiency,’ says Steve Ashmore, managing director, Exel’s Industrial Sector, Europe. ‘Now, however, with increasing pressures on costs, new regulatory requirements, cheap imports and greater customer expectations, these companies are having to develop smarter logistics operations. The results of the survey reflect our own experience at Exel where we are increasingly being approached to deliver not only strategic direction but also the implementation skills to drive out costs through supply chain expertise.’
The increasing use of toll roads throughout Europe is having local effects on logistics property – especially on land prices. Power Europe is to build a 45,000 sq m distribution facility employing up to 400 people alongside the M6 Toll Road at Cannock. It is paying a record price for the land. David Binks, a partner in the Birmingham office of King Sturge, says: ‘Power Europe has acquired 22.5 acres from the developers, Norfolk-based Morston Assets, at a price of £7.6 million – at £340,000 per acre, that’s a record land price for Cannock.’
The agreement confirms claims that the new toll road has tripled the price of development land around Cannock Chase. The first phase of Kingswood Lakeside Business Park, located adjacent to Junction T7 on the M6 Toll Road, was completed in September of last year. It extends to 63 acres.
Morston Assets originally acquired the site from British Coal some years ago then entered into a joint venture arrangement with Staffordshire County Council for the reclamation of the scheme and construction of site infrastructure. Early last year, Morston Assets acquired the county council’s land holding of just over 26 acres of land for about £7.7 million.
The variable road tax for all Heavy Goods Vehicles (HGVs) on German motorways is likely to do the same when and if it comes into force. The Austrian variable road tax, already underway, is seeing small alterations in journey times but not yet enough to force a change in land prices.