Declining industrial confidence across European markets has not dented demand for warehouse space in EMEA, with logistics services companies competing fiercely over property, particularly near infrastructure hubs and in last mile locations close to population centres, due to the rise in e-commerce.
Vacancy decreases driven by lack of new completions
“Vacancy rates remained low in 1H 2018, with the vacancy average across all markets surveyed at 5.7%, and sub-3% vacancy rates found in cities including Munich, Bucharest, Copenhagen, Prague and Barcelona, among others”, says Damian Harrington, Head of EMEA Research at Colliers International. “The strong demand meant that the percentage of markets seeing decreases in take-up fell from 54% in H2 2017 to 46% in H1 2018. This growth in demand could have been higher, but was constrained by the lack of quality, modern space available to occupiers.”
Construction activity was weak, although conditions improved relative to end of 2017, and the percentage of markets registering falls in their development pipelines decreased from 40% to 32%. There were big discrepancies among different EMEA markets: some CEE regions, like Central Poland, displayed robust construction pipelines, while in Western European cities such as Stockholm, Munich and Berlin, pipelines remained very low, at sub-100,000 sqm.
"The warehouse market in Poland is growing at a fast pace. In the first half of the year, we observed a record increase in demand by as much as 16% compared to the same period last year. 2.2 million sqm of modern warehouse space is currently under construction, which corresponds to as much as 15% of all warehouse space built in Poland over the last 20 years. This shows the huge scale of the Polish warehouse market and suggests a high level of activity among tenants. The potential in the market is not limited to the largest centres. We are observing a lot of interest in regional markets from manufacturing companies that are ready to invest in Poland. It is worth adding that despite the increase in rental rates, Poland is still a very attractive market for investors," says Maciej Chmielewski, Senior Partner at Colliers International, Director of the Industrial and Logistics Agency.
Outlook remains positive for the industrial and logistics market in EMEA
Fierce competition for warehouse space and very limited availability will continue to weigh heavily on activity over the remainder of 2018, and most likely well into 2019. Looking at the macroeconomic picture, there are a number of uncertainties ahead that weigh heavily on the outlook for industrial and logistics real estate. In the UK, there are many unknowns around the outcome of the Brexit negotiations, and the impact on supply chains. In the EU27, Germany and the Eastern European automotive regions would be disproportionally affected by the trade wars with the US.
“Generally speaking, occupiers looking for industrial accommodation in key geographies like Germany, the Benelux region and Scandinavia must prepare for further rental uplifts, but the market is stabilising in places. In cities including Stuttgart, Munich, Barcelona and Budapest, healthy demand will be clashing with reduced supply, but in cities like Lodz in Poland, active pipelines could be holding back uplifts in rental rates”, comments Harrington.