Despite a stabilisation in industrial production in Europe towards the end of last year, it is likely that conditions in the sector will continue to remain tough while its recovery will depend heavily on how quickly Europe’s economic problems can be resolved and improvements filtered through. However, the industrial and logistics market is being boosted by US investors and there is increasing demand for space from online retailers across Europe, according to Colliers International’s EMEA Industrial & Logistics Report.
Looking ahead Colliers estimates that despite 2013 expected to be another difficult year for the European economy, the industrial and logistics market is anticipated to remain stable. With hardly any speculative development in the pipeline, the market will continue to be characterised by the supply-demand imbalance. Pre-lease agreements and build-to-suit projects will constitute significant market share. However, as the economic conditions remain challenging, many occupiers expect more flexible lease terms, therefore companies that cannot commit to long term liabilities might defer decisions or turn towards secondary properties.
Limited supply of quality space impacts take-up
The EMEA industrial and logistics market continues to be characterised by limited supply of quality space and hardly any speculative projects under construction. Many occupiers therefore have limited choice of new developments. Prime rents remain broadly unchanged across the majority of markets. A further decrease of rents took place in Southern Europe, where demand was restrained by poor economic performance. Core Western European markets continued to record relatively healthy demand levels, while in Eastern Europe, Russia and Poland dominated the market again. The largest transactions in the region were signed by retailers Leroy Merlin (56,000 sq m, renewal, Poland) and Adidas (65,000 sqm, pre-lease, Russia).
US buyers boost the market
Industrial and logistics investment in EMEA totalled approximately €12 billion in 2012, 5 per cent down compared with the previous year and about 11 per cent of total CRE investment. With over €3.5 billion worth of industrial and logistics acquisitions, US investors were by far the largest group of cross-border buyers in Europe, targeting mainly UK property. The UK retained its status as the most liquid logistics investment market in Europe (43 per cent of total investment) followed by Germany and France.
Demand from the e-tailers to further expand
As online retail continues to grow, increasing demand from multi-channel retailers is expected, not only in the strongest online markets such as the UK and Germany but also in emerging markets such as Russia, where online sales are booming. Russia, Poland and Turkey are seeing significant levels of space under construction. However, the vast majority of space has already been leased and, along with declining vacancy levels, an increase of bulk space rents is anticipated in some markets.
3PL Companies in the spotlight in the Greek market
2012 witnessed a notable decrease in industrial leasing activity, as a result of the reduced industrial activity and limited equity in the Greek market. Investors adopted a wait-and-see strategy, focusing mainly on distressed assets in order to achieve higher returns. Demand although decreased was driven by businesses entering into agreement with 3PL companies seeking to reduce their product’s storage and transfer costs.
Despite challenging economic conditions, the availability of good quality industrial land and buildings suitable for logistics use reaches satisfactory levels for the standards prevailing in Greece, while the quality of contemporary spaces meets the requirements applicable abroad. This is a result of significant supply that preceded the recession. However, the fall in industrial orders due to the declining consumption and recession affecting most industries, has significantly affected the subject market.
Ana Vukovic, Managing Director of Colliers International Greece commented: “Real estate activity in the Greek logistic/industrial market is estimated to remain low due to limited bank financing and time needed for implementing competitive structures. 3PL companies will continue within 2013 their conservative policy keeping operating cost in low levels. However, new production lines introduced by multinational companies combined with new deals for distribution cooperation and cost efficient solutions increase the activity and demand for space, motivating the market interest towards potential transactions.”
Closing, with little investable new stock expected to come onto the market from development, opportunities should mainly arise from investors disposing of non-strategic assets or assets that have come to maturity within their portfolios. Implications of e-retailing on the supply chain is estimated to become more clear therefore will lead to a reappraisal of investment products such as fulfilment centres, last mile logistics and cross docking warehouses that have traditionally fallen outside many investors’ focus. This is anticipated to also bring more clarity about pricing and potentially boost liquidity in this segment of the market.