January 27, 2012
The economic problems facing the Eurozone and indeed the rest of the world have led to a flight to core and a flight to quality in almost every commercial property sector. The industrial and logistics market is no exception.
Hotspots continue to follow fundamental rules and tend to be found in areas supported by high levels of manufacturing; where there is a large and high-spending population base; and in areas close to a main port/distribution hubs receiving goods from outside of Europe which are then redistributed.
Damian Harrington, Colliers’ director of research, says: “At present, this is typically in and around the Benelux region; most of Germany, notably around Hamburg; eastern France including Paris down into Catalonia & Barcelona. Across North West Italy (Milan, Turin) sweeping across Switzerland up into southern Germany, western Czech Republic and Poland.
“There are also spots around London-Birmingham in the UK, around Moscow – an ever growing market – and around major, large capital cities such as Madrid.
Indeed despite the harsh financial climate in Spain, sports goods retailer, Decathlon forged ahead with its 48,660 sq m pre-let warehouse at Los Gavilanes, being developed by Obras Caminos y Asfaltos. With its direct access and frontage to the A-4 Madrid-Andalusia motorway and the M-50 city ring-road the area is expected to become the prime logistics hub for the south of Madrid, serving both the wider business community as well as retailers. The scheme was snapped up by AXA REIT for one of its clients.
It’s not just the occupiers taking the secure option. Philip Dunne, managing director and president of ProLogis Europe, says: “There is a flight to core whereby investors will accept lower returns in volatile and uncertain environments. However, this is not 2008 again; the markets are not oversupplied so they will continue to tighten and investors can look to growth in overall income streams. Rents typically rise. The industry will not have the super growth it previously enjoyed but there is still business to be done.”
Recently, business has been secured on both a letting and investment basis in the CEE markets as well as those in Germany. Indeed DTZ’s Property Times European Logistics report notes that take up in Germany increased 42% and in CEE 28% in H1 2011. Savills’ Eri Mitsostergiou, director of European research, adds that she expects total take up in countries such as Sweden, Poland, UK and the Netherlands to exceed 2010 levels.
Oliver Wissel, industrial director at BNPParibas Real Estate Germany, adds: ‘In the first three quarters we have already seen a take-up of around 4.7 million sq m which is a record in the market in the last years. A take-up of around 5.5 million sq m in Germany could be possible.’
Jos Tromp, head of CEE research and consultancy at CBRE says: “Generally Poland is in the spot-light, based on the fact that economic growth proved relatively resilient thus far since the crisis hit the markets in 2008.”
Christopher Prioux, international logistics director at BNPPRE, adds: ‘In Poland the key driver of new hot spots are road improvements and new motorways opening up in new regions. The recent completion of a part of the north (Gdansk) to south motorway is opening up interest in central cities of Torun, Bydgoszcz and the Gdansk region to retailers and manufacturers.
“Gdansk also benefits from the largest deep water container terminal in the Baltic (DCT Gdansk) where Goodman is developing the Pomeranian Logistics Centre. The current boom in shipping containerisation is increasing the importance of port side warehousing in Poland.”
Several other developers are keen to progress industrial and logistics schemes in these areas, indeed Dunne says: “As a gateway to the East, Poland is an interesting place to operate. It [the industrial market] has a tendency to go up and down quickly, [but] at present it is rising up again [and] this time around the growth is more robust.
“Cleary there is an increasing sophistication and improved regulation with more transparency making it a safe place to invest this time round.”
Looking at other CEE countries with good infrastructure links, Tromp says: “The Czech Republic, driven by its close proximity to Germany is in demand while lower-cost countries as Romania, Turkey and Russia – with large consumer markets – are likely to see a further increase of demand from manufacturers.
“However, smaller CEE markets may be more dependent on one-offs, since skilled labour availability is lower generally and infrastructural connections may be poorer.”
Jon Sleeman, head of research at Jones Lang LaSalle agrees that these countries “will attract strong occupier demand partly because in relative terms these economies are still growing at a reasonable pace.”
Looking at the Russian market, Viacheslav Kholopov, Knight Frank’s director of industrial in Russia, notes: “Most warehousing is concentrated around Moscow, and this situation still remains since Moscow continues to be the richest city of the country. We also expect future warehouse market growth in major cities of Russia with population over a million such as St. Petersburg, Novosibirsk, Ekaterinburg, Rostov-on-Don and Krasnodar, following with emerging locations such as Perm, Chelyabinsk, Ufa, and Kazan.
Even where economies are slower and occupier demand has been subdued the precepts of supply and demand can produce hotspots. For example in the UK there is a shortage of good quality stock. Paul Rixon, head of logistics at BNPPRE UK, says: ‘Hot spots continue to be the South East around M25, the A14 and M1/M6 corridors and anything in close proximity.”
The lack of supply is becoming more prevalent in Continental Europe, Savills’ Mitsostergiou explains: “Speculative development has virtually disappeared from markets due to the difficulties of acquiring financing and risk-averse developer attitude; hence developments are mostly built-to-suit with pre-letting agreements.”
And it does not look like changing in the near future as Alexandra Tornow, head of EMEA logistics and industrial research at Jones Lang LaSalle makes clear: “Occupier sentiment weighted down by slowing global growth and increasing financial tensions is now restraining the return of speculative development which was previously expected to emerge towards the end of the year.”
Guy Frampton executive director, European industrial and logistics at CBRE, says: “But it’s not just question of market selection: occupiers in many markets are taking advantage of a period of rental weakness to upgrade from outdated space to more modern warehouse buildings.
“This is polarising the leasing market and focussing demand on the prime segment where supply is limited. So “hotspots” can exist at micro-market level where this tendency is especially strong and where a rising proportion of leasing activity is focussed on better quality space.
“Often shifts in locational patterns within a market are associated with major infrastructural changes. For instance, port redevelopment works in both Amsterdam and Rotterdam are shifting the focus of demand towards the newer, renovated areas while in many markets including Oslo and Dublin demand is ever-more focussed on areas close to the main arterial road corridors.”
Jones LangLaSalle’s Sleeman agrees and says: “A new rail freight service from Chongqing, in China’s less-developed western regions, has been trialled giving a new transcontinental rail freight route to Duisburg making this area in Germany a potential hotspot.
“The route offers a shortcut to the more traditional deep sea container trade routes from Shanghai and Guangzhou, cutting the journey time to Europe from c. 36 days by container ship to just 13 days by freight train.”
James Marby, director of European industrial investment at CBRE, concludes: “The reality is that outside of the obvious answer that “hotspots are near a port or airport” the situation is far more diverse, as occupiers, investors, developers and bankers all have different but interrelated criteria that will mean they may well come to a different conclusion and all will be entirely right, for their own purposes.
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