Increased confidence and optimism means that
many companies are now in a position to plan
more strategically, and this is having an impact in
terms of demand for property. Furthermore, the
Financial Times has concluded that “Eurozone
manufacturing ends 2013 on a high” which is
fuelling demand for manufacturing buildings
across the continent.
Whilst the German manufacturing base has always been particularly
strong, this has now been echoed in a number of other countries,
such as the UK. Encouragingly, the forecasts for industrial
production are for further sustained increases, particularly in
Central and Eastern Europe.
Though this underlying trend is very encouraging, it comes
at the end of a period where property developers and
funding institutions have had little confidence to construct
buildings on a speculative basis. Consequently stock
levels are now reduced, meaning that the opportunities
for businesses to relocate are more limited and are often
secured either in more secondary buildings or purpose
built facilities, with an inherent time lag in satisfying
the requirement due to the construction period of the
building. In a statistical context, the supply of grade A
logistics stock across Europe stands at 4m sq m, which
is half the level of supply in 2008, the peak of the
market. In terms of occupier activity, in 2013 take-up
was 14m sq m, still 10% down from the 2008 peak, but
forecast to increase to 15m sq m by the end of 2014.
This supply and demand ratio means that landlords
are now hardening their terms particularly for the
better quality buildings. Whilst net effective rents
have reduced by 25% since the peak, this is now
changing with marked rental increases in the
most popular locations, which will be followed by
a general rent average increase of almost 1.5%
for the next five years across the continent.
The rental costs of occupying a building are
increasing, and also landlords are becoming
firmer in their negotiation positions over lease
terms, and are less prepared to offer more
flexible leasing arrangements to occupiers.
Not only is manufacturing fuelling demand for industrial
properties, but evolving strategies in retail are also fuelling
demand for warehousing. This is coming in the form of increases
in e-tailing activity which is being seen across European
counties, with a predicted 15% increase in retail sales by 2020.
This has meant that many companies are reconfiguring their
warehouse networks, although there is a differing vision from
many businesses as to how best to serve their e-sales delivery
networks. Common to all however is the need to deliver locally
to customers, and this has resulted in a wave of demand from
parcel companies for new local and regional delivery centres.
This has also resulted in a significant increase in demand
for vans and trucks across Europe, which is further fuelling
manufacturing demand.
There has been much talk in the press about on-shoring,
off-shoring, re-shoring and now ‘best-shoring’. Most businesses
will locate their manufacturing facilities closest to the markets
they are looking to serve as this minimises transportation
costs and leads to a more flexible approach to production
requirements and products. Whilst there will continue to be
a significant amount of manufacturing carried out in the Far
East, particularly in China, this is being stimulated by domestic
market consumption rather than the best location for low cost
production. As a result we are likely to see continuing demand
from manufacturing businesses requiring new premises in
Europe to satisfy the growing demand created by the increased
confidence levels. While China remains a key destination for
low cost manufacturing, other locations including Eastern
Europe, Russia, Turkey, India and Vietnam will attract expanding
manufacturing companies, due to increasing domestic demand.
Even though off-shoring clearly has its advantages, there are
risks involved and consequently re-shoring is now in evidence
with several companies deciding to bring back manufacturing
facilities to their home countries. Reasons to do so are not
only proximity to key markets, but also increasing labour and
transportation costs, decreasing energy costs in some western
markets, together with technological innovation, brand image
and protection of intellectual property. Many companies are now
adopting a ‘best-shoring’ strategy which is described as the best
combination of cost and efficiency, with a suitable workforce,
regardless of location.
With business optimism improving, occupiers are slowly shifting
their real estate decisions towards growth. Although we are
expecting to witness strong demand for property in 2014,
corporates should be aware that costs in the core markets are
likely to increase due to limited choice of grade A supply. This may
drive occupiers towards built-to-suit facilities with less flexible
leases, if more secondary stock is not available or suitable.
ROB HALL
Head of Industrial
and Logistics, EMEA
+44 (0)20 3296 2076
SIMON LLOYD
Senior Director,
Industrial and Logistics, UK
+44 (0)121 697 7392
Supply of grade A logistics stock
across Europe stands at 4m sq m,
which is half the level of supply in
2008, the peak of the market
Landlords are becoming
firmer in their negotiation
positions over lease terms
Many companies are now adopting
a ‘best-shoring’ strategy
Locations including Eastern Europe, Russia,
Turkey, India and Vietnam will attract
expanding manufacturing companies
DTZ | In Situ 19
