JLL: Industrial occupiers face increasing supply shortage of large modern units in EMEA

Sentiment among consumers, retailers and manufacturers remains at low levels amid the continued Eurozone crisis. Increased occupier caution is reflected by slowing demand levels for industrial units and take-up for the full year 2012 is expected to remain 20% lower than during the 2011 record year, according to Jones Lang LaSalle.

This trend is reflected in the on-going weakening in leading industry indicators such as the Manufacturing Purchasing Managers' Index.

"Despite a more subdued outlook for European manufacturing markets, demand for large modern units is likely to remain above the long-term trend as occupiers continue to pursue supply chain optimization and realign strategies to meet changing customer requirements," comments Vincent Lottefier, Chief Executive, EMEA Corporate Solutions at Jones Lang LaSalle.

However, readily available supply of large modern units is now tighter compared to a year ago. This coupled with on-going limited future speculative development means choice is set to contract further over the remainder of the year, particularly across the main European hubs. As a result, occupiers will increasingly be forced to compromise on quality or location or sign up for build-to-suit units on less flexible terms.

"A weaker economic growth outlook coupled with persistent occupier caution is likely to lead to falling cost levels in a number of markets during 2012. Nevertheless, scarce modern supply means that rental changes will be mostly marginal. Occupier demand still outweighs supply levels which will limit improving occupier negotiation power, in particular within the strategic hubs across Europe," adds Lottefier.

The picture looks slightly better for those occupiers searching industrial space across Central and Eastern Europe. Choice remains higher within the majority of these markets while rental profiles are mostly softer if compared to the core Western European locations. Nevertheless, modern stock levels continue to be significantly lower compared to Western Europe.

Furthermore, while occupier demand has slowed during the first months of the year, the pace of slowdown is lower compared to Western Europe. Stronger occupier activity will therefore drive down choice levels across the Central and Eastern European region over the coming months.

"We expect the number of industrial markets offering healthy choice levels to shrink further during the second half of 2012," said Alexandra Tornow, Head of EMEA Logistics and Industrial Research at Jones Lang LaSalle.

"Currently only Amsterdam, Paris, Lyon and Madrid in Western Europe and Budapest and Warsaw in Central Europe offer good choice levels. As we do not see speculative development in these markets, supply levels are expected to decline over the next few quarters.

"The only exception remains Russia where a significant amount of speculative development - around 400,000 m² - means that occupier choice is likely to improve, albeit from a very low level," she adds.

Meanwhile, industrial occupier demand across EMEA remained on low levels outside of Europe. Nevertheless, multinationals are increasingly looking at Middle Eastern markets to take advantage of lower labor cost, labor availability and to serve the growing local customer markets.

This trend is reflected in a number of new developments taking shape, the most notable being the large industrial and economic cities in Saudi Arabia as well as the continued expansion of the UAE global logistics hub driven by port-centric activities around Jebel-Ali in the Dubai port area – while large industrial land plots above 10,000 m² are now in very short supply in Dubai.

"In part still under-developed industrial real estate markets in combination with rising activity will put increasing upward pressure on industrial rents in selected Middle Eastern markets, in particular in Saudi Arabia while rents are anticipated to remain stable in UAE due to a slightly more occupier favorable conditions," concludes Tornow.

Source: Jones Lang LaSalle

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