A lack of suitable and available industrial properties is driving up industrial rents and spurring the return of speculative development in many prime markets, according to a new report from CB Richard Ellis Group, Inc. (CBRE).
CBRE's latest global analysis of the industrial logistics sector shows that expansion strategies and retailer demand are helping to underpin industrial rental growth to some extent, particularly in the Asian markets, as is world trade growth, which is back to pre-crisis levels.
However, the Global Industrial MarketView report highlights that the main driver of growth has been the lack of suitable, high specification properties in most regions and this is expected to continue to drive global prime rents upwards throughout 2011.
According to CBRE's Global Industrial Rent Index, rental growth has been better than anticipated, with the Index rising 1.3% during Q1 2011 the largest quarterly growth since Q2 2007. In the year to Q1 2011, rents grew by 2.1%.
CBRE Global Chief Economist Ray Torto commented; "A constrained industrial supply pipeline and a move by occupiers to achieve cost savings and redistribute warehousing costs to 3PLs are the key trends which will continue to drive occupier demand and future rental growth. World trade flows have also rebounded and this will be a positive for logistics demand over the medium term."
However, Dr. Torto noted that the industrial sector like all sectors of the commercial real estate market was undergoing a gradual and somewhat fitful recovery which would be influenced by a number varying factors, some of which were global and some of which were location specific.
"Improving trade movements and economic growth in most economies will benefit the global industrial sector, however as consumer confidence continues to waver and unemployment levels remain high in some markets, the rate of recovery in the sector will continue to be fragile," Dr. Torto said.
"Other macro risks such as political instability in some countries and the effect of higher crude oil prices in the short to medium term are equally critical for the global logistics sector. A rise of 19.5% in crude oil prices in Q1 alone has significant implications on the cost base of logistic occupiers and could impact on location decisions going forward."
CBRE's analysis covers 55 of the leading industrial and logistics markets across the world. It shows that, as of Q1 2011, Tokyo continues to be the most expensive industrial market for distribution/logistics centers with an average rental of US $22.15/ft². Despite contracting slightly during Q1, 2011, London continues to hold second position (US $20.04/ft²), while Singapore at (US $14.04/ft²) has surpassed Sao Paulo, Brazil (US $12.88/ft²) as the third most expensive location.
The report shows that Asia Pacific markets have led the global rental recovery, with the region recording 9.0% rental growth in the year to Q1 2011. Although currency movements have impacted the rankings table, six of the top 10 most expensive global industrial markets are in the Asia Pacific region with Tokyo and Singapore followed in the rankings by Sydney in seventh position and Perth, Brisbane and Hong Kong at eighth, ninth and 10th position respectively.
An improving rental market and growing occupier demand have also translated to increasing investor interest, particularly in the Americas and in the EMEA industrial sector. This has led to an 11 basis point contraction in CBRE's Global Industrial Yield Index
"The US Industrial market, having been hit particularly hard in recent years is now showing signs of recovery," said Edward J. Schreyer, SIOR, Executive Managing Director, Industrial Services (Americas), CB Richard Ellis.
"As the bottom of the rental cycle appears to have been reached, tenants are looking to take advantage of the situation by exploring longer leases at favorable rates and renegotiating existing leases while landlords have evidently began to tighten the level of incentives such as free rent and over standard tenan