The Q1 2013 European logistics real estate take-up market continued to demonstrate steady performance, according to the latest analysis from Jones Lang LaSalle. Germany was once again the most active European market, while Spain was the only other market to demonstrate growth. Completions have fallen, but six million m² of space under construction is the highest amount since 2008, demonstrating the confidence in the sector.
Occupier demand remained stable year-on-year in the first quarter of 2013 thanks to continued global supply chain realignment, largely based on a growing e-commerce sector. A total of 2.9 million m² of logistics units over 5,000 m² in size were taken-up in Q1 2013.
Activity declined by 21% over the quarter but remained only marginally below the first quarter five-year average (-8%), which includes the boom years of 2008 and 2011 with the highest Q1 take-up volumes on record historically. Nevertheless, slowing activity over the quarter was broad based, indicating increased occupier caution amid a subdued Eurozone economic outlook. Leading industry indicators such as the Eurozone Manufacturing Purchasing Managers’ Index still point at a prolonged recession in the sector. Only two markets recorded rising take-up volumes over the quarter: Germany, with a 38% increase on an exceptionally slow Q4, and Spain (+13%) where occupiers continue to take advantage of favorable market terms to relocate to modern units.
“Companies are stretched between the need to re-organize their logistics networks to respond to changing customer demand, largely based on growing online sales, and the need to manage cost and occupied space in the light of slow economic growth” comments Paul Betts, Head of Logistics & Industrial EMEA at Jones Lang LaSalle. “This is leading to tougher cost negotiations and a prolonged decision process. With the shadow of economic uncertainty lingering over European markets, we expect take-up volumes at best to be flat in 2013”. With around 40% of the total, amounting to almost 1.2 million m², Germany remained the most active occupier market in Q1 2013. This result was supported by a number of large deals outside of the ‘Big 5’ (Berlin, Düsseldorf, Frankfurt, Hamburg and Munich) such as a 95,000 m² lease by logistics group Fiege and a 175,000 m² owner-occupier unit for German bookseller KNV (Koch Neef Volckmar), both located within the Erfurt region.
Overall completion volumes fell to around 1.1 million m² in Q1 2013, the lowest level since the start of 2011. However, continued dynamic occupier markets over the last few quarters with demand particularly focused on new build space has hold up development activity overall. New completion starts in Q1 2013 were stable on the previous quarter at around two million m², the highest levels since the slump in development activity in mid-2008. As a result, almost six million m² were under construction by end March 2013.
“We expect development starts to slow down over the next few months along with the more cautious occupier behavior. Nevertheless, the increase of new building requirements arising from changing distribution networks and growth in emerging markets will continue to keep the pipeline at healthy levels. In particular developers holding land banks in proximity to the major European consumer markets or close to important gateway hubs such as container seaports and intermodal nodes, will benefit from continued demand,” says Alexandra Tornow, Associate Director, EMEA Logistics & Industrial Research at Jones Lang LaSalle.
Prime logistics rents were unchanged across all markets in Q1 2013 over the quarter with one exception: Moscow prime rents rose by 3.7% thanks to continued strong occupier demand in combination with subdued existing modern vacancy. Looking ahead, continued healthy demand together with limited modern supply will support overall rental stability over the remainder of 2013. According to Jones Lang LaSalle predictions, in 2013 prime rental growth across the major markets is likely to be restricted to select German markets whilst there remains the threat of further rental decline in markets such as Budapest and Warsaw.
Source: Jones Lang LaSalle