The changing landscape of industrial and logistics markets in Europe

Demand for I&L space continues to be bolstered by the positive economic fundamentals says
Colliers International in its latest report: “EMEA H1 Industrial Market Snapshot”

Tim Davies, Head of I&L for EMEA outlines that confidence in the Industrial and Logistics (I&L) sector across Europe reached a six-year high in July, only slightly less than its pre-financial crisis peak. E-commerce remains a key source of demand for space and is gaining market share in Spain and Italy, as well as driving activity in new locations in the UK and across continental Europe.

“It is inevitable that the e-commerce factor will spread further afield and this is positive news for CEE”

Key findings from the report include:
– A positive economic environment stimulates demand for I&L space. Amazon and Alibaba are still expanding and adding e-fulfilment space in 2017

The Eurozone’s GDP grew by 2.1% y-o-y in Q2, from 1.9% in Q1. The European Commission’s industrial confidence indicator for the EU’s 28 member states is now close to its pre-crisis peak.

Demand is robust across the board – Prologis reported their highest demand level in 10 years (for H1 2017) and e-commerce is an increasingly important driver. Amazon will add no less than 1.2 million sq m of e-fulfilment space while Alibaba, already present in the Czech Republic and UK is looking for new locations along the “Silk Road” rail route.

– Voids continue to fall and sub-5% vacancy rates are increasingly the norm

Voids continue to fall, with sub-5% vacancy rates increasingly the norm in established Western markets like London (3.5%), Frankfurt (3%) or Barcelona (3.6%), but equally in traditionally less-land constrained CEE markets like Prague (4.0%) and Budapest (4.20%, down from 9.70% a year ago). This means market conditions tend to increasingly favour landlords.

 – Rental growth was more widespread in the first six months of 2017, stretching beyond Western Europe to CEE

 Rental growth was more widespread in the first six months of 2017. Bratislava was the star performer – prime headline distribution rents grew 17.6%. Significant uplifts were recorded in the UK (led by Bristol, +7.7%) & Ireland (Dublin, +8.6%) Sweden (Gothenburg, +7.7%; Stockholm, +6.3%) and Denmark (Copenhagen, +4.8%). Rental growth is also starting to show through in CEE hubs like Budapest (+7.1%) and Prague (+2.6%), although developers remain flexible on incentives. In the next 6-12 months, further rental growth is expected in the UK, Nordics, Iberia and some core and regional German markets, plus some particularly supply-constrained markets in CEE like Budapest.

– Pre-lets and build-to-suits remain the main catalyst for new development

 Pre-lets and build-to-suits remain the main catalyst for new development, particularly in the larger bracket size (20,000+ sq m). There are pockets of speculative development where supply is most constrained, but usually not on the scale required to alleviate the shortage of good quality stock in most markets. Developers generally remain cautious and wait for new builds to be let before launching new phases. Attitudes to speculative development also vary by geography. In Madrid, there is now more appetite given the lack of modern supply and strong economic growth. The CEE region is also seeing its fair share of speculative development, mostly in Slovakia and Czech Republic. In Germany, the lack of development sites continues to constrain new supply.

–  “Tower-sheds” and “beds-and-sheds” are now more than buzzwords   

Land availability and value constraints in and around major European centres is leading to the development of new logistics formats. Modern logistics facilities incorporating ‘tower-sheds’ and ‘beds-and-sheds’- (mixed-use developments integrating logistics) are among the range of new developments being delivered to market.

Davies concluded “It is notoriously difficult to predict how long the positive market will continue but we do not anticipate any let up in activity for at least the next 18 months”.

See the full document HERE.