Occupiers of industrial space across the EMEA region remain primarily focused on space upgrades and network optimization strategies. This is sustaining the demand for modern industrial space but also increasing the churn of older second hand stock according to Jones Lang LaSalle's Q2 2011 EMEA Corporate Occupier Conditions Industrial research report.
Corporate confidence in Europe remains above its long-term average and coupled with strong corporate cash balances, is now beginning to translate into new flows of corporate investment. While this is having a positive influence on activity levels within real estate markets, expansion strategies for industrial occupiers are only gradually re-entering the corporate agenda.
"Future demand in the industrial real estate sector is likely to come from a broader constituency of occupiers (e.g. e-retailing, new energy sector). Compared with 2010, we are starting to see a moderate expansion in demand in selected markets, particularly in Western Europe, and we anticipate this continuing through the course of this year," said Vincent Lottefier, Head of Jones Lang LaSalle's Corporate Solutions EMEA team.
According to Jones Lang LaSalle's research, future market conditions across the region present both upside and downside risks. A shortage of modern industrial supply, as new completions and future supply pipeline across EMEA has reached historic lows, is leading to a contraction in occupier choice. In Western Europe completions over the next 12 months are forecast to be below the five-year annual average and most future supply continues to be pre-let or built-to-suit.
Vincent Lottefier added: "This shortage of modern supply will lead to tougher market conditions for industrial occupiers next year, as incentives are expected to move in and, whilst prime rents are still below their peak levels, tenants will be faced by escalating rents in most European markets by the end of this year due to limited supply levels and strong competition for space."
Jones Lang LaSalle also highlights that rising inflation, the onset of austerity measures and public sector cuts could adversely impact economic growth, industrial production growth, consumer spending and ultimately corporate confidence - the main drivers underpinning occupier demand.
On the upside, corporate occupiers are no longer focusing exclusively on core Western European logistics hubs and instead are looking further afield marked by steady growth in occupier activity particularly in selected Eastern European and MENA markets. For example, in addition to network optimization, occupier activity in both UAE and Saudi Arabia has been driven by expansion, and competition is expected to increase over the next few quarters.
Alexandra Tornow, Head of EMEA Industrial Research at Jones Lang LaSalle, concluded: "Many of the UAE markets have been led by expansive government departments and government agencies. In Saudi Arabia, the public sector has given impetus to industrial development, while occupier demand has been headed by private sector companies.
"Despite strong competition, there continues to be a substantial oversupply in Dubai, contrasted by Jeddah and Riyadh where available supply is limited."
Source: Jones Lang LaSalle