King Sturge: Recovery underway across major logistics and industrial markets (EU)

A new report by King Sturge provides an assessment of relevant macro economic trends and logistics and supply chain management dynamics, and includes commentary and analysis of 13 country markets namely: Belgium, Bulgaria, Croatia, the Czech Republic, France, Germany, Hungary, Poland, Romania, Serbia, the Slovak Republic, Turkey and the UK.

Based on this, the report concludes that:

  • Improving macro economics and changes in logistics and supply chain management will support occupier demand for logistics facilities over the medium-term.
  • Occupier markets are recovering with demand levels increasing and availability falling.
  • Prime logistics assets offer investors good defensive attributes in the short-term and are underpinned by robust fundaments in the long-term. Industrial estates which are well located in strong industrial areas also offer good performance potential.

Occupier demand for logistics is being driven by positive macro economics and changes in supply chain management
Across Europe, occupier demand for logistics and industrial premises started to recover last year after its collapse in 2009, following the sharp decline in manufacturing output and world trade in the wake of the credit crunch.

The upturn is demand is being driven by a revival in real economic activity. In particular, global GDP growth has picked up, world trade growth has gathered momentum and manufacturing output has turned around. Europe, Germany, in particular, has experienced a strong rebound in economic activity, led by exports from its large manufacturing sector.

While European domestic demand remains more subdued, the economic recovery has continued into 2011. Business confidence across Europe is also increasing, particularly in the export-orientated sectors and forecasts suggest a steady improvement in real economic activity across Europe.

In addition, changes in the way companies organize their logistics and supply chains will continue to be an important driver of property demand.

King Sturge Research Partner, Jon Sleeman, comments: "Companies are continually reassessing their supply chains to improve their performance and reduce costs, and the development of efficient warehouse networks is a key component of this."

"Key supply chain changes include the continuing centralization of retail distribution, the reconfiguration of inbound supply chains, the growth of dedicated e-fulfillment operations and the growth of 'reverse logistics', which requires facilities to handle returns, packaging and waste."

"In addition, mergers and acquisitions between companies typically lead to the re-alignment of supply chains and warehouse networks."

Occupier markets are recovering
While economies generally have been improving, occupier demand across Europe is recovering at different speeds:

  • In the UK, the take-up of new warehouse floorspace in units of 10,000 m² and over in 2010 doubled compared with 2009.
  • In Germany, the take-up of logistics property (in units of 5,000 m² and over) increased by around 40% in the major conurbations.
  • In France, take-up over 2010 was only 3% higher than 2009, although activity in the Ile-de-France region increased more significantly.
  • In Central and Eastern Europe, take-up in 2010 in Poland increased by 49%, in the Czech Republic by 106% and in Romania by around 86%.

While take-up generally rose last year this was from a very low base in 2009. In addition, some of the demand last year was driven by opportunistic deals, with occupiers taking advantage of very competitive terms to acquire new facilities, or to renegotiate leases on existing ones.

On the supply side, the recession caused a near moratorium on speculative development as major developers focused on de-leveraging and leasing their vacant portfolios. Where new facilities were developed this was almost exclusively on a build to suit basis.

As the availability of prime new logistics space has gradually diminished, due to the combination of take-up an

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