Occupancy Costs - Logistics 2011

28 Noiembrie 2011

DTZ ECHINOX CONSULTING S.R.L.

 

Low occupier costs for some time to come

In 2011, occupiers saw further cost saving opportunities due to a 1.4% decline in occupancy costs across European markets. Marseille remains the lowest cost location in the region. London Heathrow, as expected, continues to be the most expensive location in Europe. Please see (Figure 1). The largest costs savings in 2011 were realised in Dublin, where costs fell nearly 20%. The Antwerp, Madrid, Amsterdam and Rotterdam logistics markets also showed attractive declines in costs during 2011.

Average occupancy costs in Europe are projected to show only moderate growth of 1.5% through to 2016. This is well below the average inflation forecast. In particular, the Nordic markets, such as Gothenburg, Copenhagen and Oslo will show lower than average increases in costs. This is due to ample availability of land for new development. On the other hand, we project Barcelona, Madrid and Dublin to show stronger cost growth. These are triggered by an anticipated bounce back followingconsiderable declines in previous years.

The current uncertain economic outlook means occupiers are expected to maintain the upper-hand, as logistics space demand growth falters. This will be partly offset by the halt of speculative developments across several European markets. In turn, this is expected to cause the immediate grade A supply to shrink and encourage rental growth in some markets.

Of the markets covered in Asia Pacific, Shanghai offers occupiers the lowest occupancy costs. At the other end of the scale, logistics occupiers in Hong Kong currently face the greatest costs.

We forecast Hong Kong to experience the slowest growth in industrial occupier costs over the next five years, as demand shifts to mainland Chinese markets. Despite this, we expect that it will remain the most expensive major market in the Asia Pacific region up until 2016 (Figure 1).

 

Part I - European Logistics

 

Occupiers realise savings as costs fall in several markets

Marseille, Brussels and Antwerp are the lowest cost locations for logistics space in Europe

For the second year running, occupiers in Marseille, Brussels, Antwerp, Lyon, Budapest and Bucharest have benefitted from the lowest occupancy costs in Europe (Figure 2). As a result of high rents and higher than average real estate taxes, London Heathrow remains the most expensive location for logistics occupiers,followed by Oslo and South-East England. It is worth noting, however, that occupiers can benefit from lower costs in the most expensive markets through lease incentives, which are not taken into account in this study.

Dublin - one of the five most expensive markets in 2010 - saw significant decreases in occupancy costs during the year, as prime rents fell drastically over the last few quarters (Figure 3). Dublin now ranks 15^th cheapest compared to 24^th cheapest in 2010.

A third of all European markets witnessed a decline in occupancy costs during the year

Despite an improvement in occupier activity in the first half of the year, on average, the European markets experienced a decline in total occupancy costs during 2011, as the debt crisis and global financial turmoil continued to cause concern for businesses and weakened demand for logistics space. However, the crisis has had a negative impact on the speculative development of logistics space, as property owners are experiencing higher risks in today’s markets; this raises concerns for costs in themedium to longer term.

A third of the markets covered displayed significant decreases in total occupancy costs during the course of the year, due to rents declining. Property outgoings (real estate taxes and service charges) either increased or remained stable in all the markets covered. We believe that the current financial situation in Europe will motivate several local governments to raise real estate taxes in order to compensatefor loss of funds from other sources.

Occupiers in Frankfurt, Lyon and London Heathrow experienced the steepest increases in total occupancy costs in 2011, mainly due to growth in rents (Figure 3). Frankfurt has seen an increase in logistics activity and stronger demand for prime warehouse space due to its status as one of the main transport hubs in the region.

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