CB RICHARD ELLIS
MarketView EMEA Industrial & Logistics www.cbre.eu/research
October 2009
OVERVIEW
Quick Stats Change from Q1 09 Q2 08 Rent
Ð
Ð
Yield
Ï
Ï
Hot Topics • Increased negotiation between landlords and tenants around aspects of location, lease length and terms • Speculative development starts have ceased almost everywhere: construction only proceeding if significant pre-lets secured • Sector structure of tenant markets increasingly important as gauge of market strength and investment pricing • Core Western European markets of the UK, France, Germany and the Netherlands most resilient in terms of demand and investment appetite
•Demand constrained by need for cost restraint in uncertain economic environment Occupiers‘ key concerns are the need to control costs to protect margins and a desire to maximise the efficiency of occupied space. This is producing lower levels of leasing activity and some increase in vacancy, although not as markedly as had been feared, partly because of demand now being supported by weaker rents. •Rents declining but significant local variation in severity Industrial and logistics rents are generally under downward pressure, with the EU15 industrial rent index 5.4% lower in the year to mid-2009. There is substantial variation at local market level in the degree of rental decline with Belgium, Ireland and Spain among the markets most affected. By contrast the core strategic locations of France, the Netherlands and Germany have so far held firm. A number of CEE markets have also seen significant slippage in rents, with weaker world trade affecting most of these markets. •Sector maintains 10% share of the European investment market In the first half of this year, investment turnover in the industrial and logistics sector totalled nearly €2.5bn, maintaining its 10% share of the market. The UK’s share of this, having progressively diminished over the past two years, increased to 46% of the first half total, up from barely more than a quarter last year. •Yields rising but by smaller increments Industrial and logistics yields across Europe as a whole continue to trend upwards, but the degree of increase in the second quarter was well below that seen in the previous four quarters. This suggests that yields are showing signs of stabilising, reflecting a narrowing in the gap between vendors’ and purchasers’ pricing aspirations, which should boost liquidity. •Demand focused on modern flexible space in generally subdued market In overall terms, the short-term rental outlook remains subdued but will improve as supply growth slows due to the lack of new development starts. Even in the short term, the range of corporate decisions around space utilisation and supply chain reconfiguration will create pockets of stronger demand for modern flexible space, where this serves wider corporate efficiency aims. As a result, where investors and developers are able to find ways of funding them, build-to-suits are emerging as an area of opportunity, partly because occupiers are often prepared to take longer leases and fewer incentives in these situations. European Investment Turnover, Industrial and Logistics (€m) UK
Other
25,000
20,000
15,000
10,000
5,000
a
0 2004
Source: CB Richard Ellis
2005
2006
2007
2008
H1 2009 ©2009, CB Richard Ellis, Inc.
7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 -1.0 -2.0 -3.0 -4.0
Fixed capital investment Industrial production
-5.0 -6.0
Consumer spending
-7.0 -9.0
2010
2009
2008
2007
2006
2005
2003
2002
-10.0
2001
With most major European economies expected to show declines of at least 3% this year, and growth of less than 1% next year, short-term demand conditions will remain generally subdued. Against this, some forward-looking indicators have been improving in recent months and suggest that we are entering a period of more stable conditions. These include both business confidence surveys as well as more quantitative data. Most notably, estimates of Q2 Eurozone GDP show negligible change, following severe declines in Q1.
-8.0
2004
The major European economies saw severe contractions in the first quarter of this year, with industrial production particularly hard hit as producers destocked. Recent data present a more mixed picture, leading many commentators to suggest that the worst may be over even if there is still widespread disagreement about the strength and timing of any recovery.
Key Economic Drivers, EU-27, 2001-10
% Growth
MarketView EMEA Industrial & Logistics
ECONOMIC BACKGROUND
Source: Experian Business Strategies
Selected Occupier Transactions, H1 2009
OCCUPIER ACTIVITY
In some markets, such as Germany, there is a tension between tenants’ desire for more flexible short leases and landlords’ desire to prolong income security through extended leases. In others, such as Sweden, occupiers appear more willing to accept longer leases so long as they are accompanied by rent concessions in the short term. Local activity levels, and views on vacancy risk, are also being heavily influenced by a market’s sector structure. Contraction in the automotive sector, for example, is affecting demand in markets where this activity dominates, to a greater extent than those based on, for instance, food and household goods.
Market
Size (Sq m)
Tenant
Rent (€/ sq m/month)
St Ouen L’Aumone, France
17,500
Lear Corporation
5.10
Madrid, Spain
7,500
Grupo Logia
4.25
Prague, Czech Republic
12,000
Antalis
3.75
Tilburg, Netherlands
33,625
Rhenus Contract Logistics
4.50
EU-15 Industrial Rent Index 14.0%
250
12.0% 10.0%
200
8.0%
RENTS AND YIELDS
% Change pa
Nominal Terms Index
6.0%
150 4.0%
Page 2 ©2009, CB Richard Ellis, Inc.
100
0.0% -2.0%
50
-4.0% -6.0% -8.0%
Jun-09
Jun-08
Jun-07
Jun-06
Jun-05
Jun-04
Jun-03
Jun-02
Jun-01
Jun-00
Jun-99
Jun-98
Jun-97
Jun-96
Jun-95
Jun-94
0 Jun-93
October 2009
2.0%
The EU-15 industrial rent index fell by a further 1.5% in the second quarter of this year, leaving the yearon-year growth rate at -5.4%. This overall figure conceals the fact that prime rents in many of the key Western European industrial markets remained broadly static, including the main centres in Germany, France, Italy and the Netherlands.
a
Index (March 1986 = 100)
The overriding concerns of occupiers in most markets are the need to control costs to protect margins and, closely linked, a desire to maximise the efficiency of occupied space. Typically these are producing lower levels of leasing activity and some increase in vacancy and sub-letting. In parts of the UK market, growth in mainly secondhand stock through sub-letting is extending voids and undermining rents, even while values in the new build-to-suit market remain firm. This is not true in all cases: in the Netherlands for instance take-up in the first half of this year exceeded that in the second half of 2008, masking the effects of sublet disposals.
Industrial Yield Indices
9.5% 9.0% 8.5% 8.0% 7.5% EU-15
7.0%
EU-27
6.5%
Ju n88 Ju n89 Ju n90 Ju n91 Ju n92 Ju n93 Ju n94 Ju n95 Ju n96 Ju n97 Ju n98 Ju n99 Ju n00 Ju n01 Ju n02 Ju n03 Ju n04 Ju n05 Ju n06 Ju n07 Ju n08 Ju n09
6.0%
The EU-15 industrial yield index rose by ten bps in the second quarter - a far smaller change than in any of the previous four quarters - to stand at just under 8%. This reflects wider evidence of yields beginning to stabilise across all sectors, with investment turnover having picked up towards the end of the quarter. Across Europe as whole, the largest recent yield rises have mostly occurred in CEE markets, including Budapest, Moscow and Sofia, as previously unrealistic risk premia have been revised up.
Industrial Investment by Market, H1 2009
Germany
12%
3% 2% 3% 5%
INDUSTRIAL INVESTMENT
UK France Netherlands
16% 10%
Italy
3%
Spain Sweden CEE
46%
Key Investment Transactions, H1 2009 Price €m
AEW
119.7
UK, Various
Harbert
73.9
London, UK
Deka
73.9
Dartford, UK
AEW
68.0
a
The UK’s share of investment, which had progressively diminished over the past two years, increased to 46% of the first half total, up from barely more than a quarter last year. Between them the Netherlands, France, and Germany accounted for a further 25% in H1, illustrating the relative resilience of the core Western European markets relative to the more opaque markets of Southern and Eastern Europe. The shift in investment back in favour of the UK market reflects the view that it is further advanced in the value-adjustment cycle and hence regarded as less likely to suffer further reduction. UK industrial yields have risen by over 300 bps in the period since mid-2007 and are now stabilising; industrial yields across the EU-15 group have risen by around 150 bps over the same period and are still rising, albeit now at slowing rates. Page 3 ©2009, CB Richard Ellis, Inc.
October 2009
Buyer
Germany, Netherlands/Various
In the context of generally low levels of real estate investment in the first half of this year, the industrial and logistics sector recorded turnover of nearly €2.5bn, maintaining its 10% share of the market. In absolute terms, investment turnover in the industrial and logistics sector was 45% down on the second half of last year. The defensive characteristic of a high income return, and hence less dependence on rental growth, is one factor that enhances its attraction to investors in weak economic conditions. A range of panEuropean institutional investors, as well as a number of German open-ended funds, are now increasingly attuned to the advantages of investing in the sector.
Other
Market/City
By contrast, Belgium, Ireland and Spain saw notable falls, with the last two of these having declined by 20% or more over the past year. CEE markets also present a complex picture. Some of the more peripheral markets such as Kiev and Moscow, but also Budapest, have seen year-on-year falls of more than 20%. Others such as Prague, Warsaw, Sofia and Bucharest have either remained stable or seen only limited decline. With weaker world trade affecting all these markets, the extent to which new supply in each market contracts from recent high levels will be a key factor.
MarketView EMEA Industrial & Logistics
10.0%
MarketView EMEA Industrial & Logistics October 2009
KEY MARKET DATA, MID-2009
PRIME INDUSTRIAL RENT
PRIME INDUSTRIAL YIELD
% CHANGE € / sq m/ annum
Last 3 months
Last 12 months
%
€ 5.25/sq m/month
63.00
-0.9
-4.6
7.60
Brussels
€ 43.00/sq m/annum
43.00
-10.4
-10.4
7.60
Sofia
€ 5.00/sq m/month
60.00
0
0
12.00
Croatia
Zagreb
€ 5.80/sq m/month
69.60
0
0
9.75
Czech Republic
Prague
€ 5.00/sq m/month
60.00
0
-9.1
8.75
Denmark
Copenhagen
DKR 500.00/sq m/annum
67.14
-4.7
-4.8
7.75
Finland
Helsinki
€ 117.00/sq m/annum
117.00
-2.5
-12.0
7.20
France
Paris
€ 80.00/sq m/annum
80.00
0
0
8.25
Germany
Berlin
€ 4.50/sq m/month
54.00
0
-2.2
7.50
Germany
Dusseldorf
€ 5.20/sq m/month
62.40
0
0
7.25
Germany
Frankfurt
€ 5.90/sq m/month
70.80
0
0
7.25
Germany
Hamburg
€ 5.70/sq m/month
68.40
0
1.8
7.25
Germany
Munich
€ 6.40/sq m/month
76.80
0
0
7.25
Greece
Athens
€ 6.00/sq m/month
72.00
0
-7.7
8.25
Hungary
Budapest
€ 5.00/sq m/month
60.00
0
-9.1
9.50
Ireland
Dublin
€ 102.00/sq m/annum
102.00
-8.9
-21.5
9.00
Israel
Tel Aviv
$ 10.00/sq m/month
90.57
0
-25.2
10.00
Italy
Milan
€ 58.00/sq m/annum
58.00
0
-6.5
8.00
Italy
Rome
€ 61.00/sq m/annum
61.00
-1.6
-6.2
8.00
Netherlands
Amsterdam
€ 70.00/sq m/annum
70.00
0
-6.7
7.85
Netherlands
Rotterdam
€ 70.00/sq m/annum
70.00
0
7.7
7.35
Norway
Oslo
NKR 1,000/sq m/annum
112.15
-4.8
-13.0
7.75
Poland
Warsaw
€ 5.00/sq m/month
60.00
-4.8
-9.1
8.75
Portugal
Lisbon
€ 3.80/sq m/month
45.60
-5.0
-24.0
8.25
Romania
Bucharest
€ 4.70/sq m/month
56.40
0
4.4
10.00
Russia
Moscow
US$ 105.00/sq m/annum
79.25
-4.6
-25.0
14.00
Serbia
Belgrade
€ 5.00/sq m/month
60.00
0
0
13.00
Slovak Republic
Bratislava
€ 4.00/sq m/month
48.00
-5.9
-11.1
8.75
Spain
Barcelona
€ 78.00/sq m/annum
78.00
-7.1
-18.8
9.00
Spain
Madrid
€ 78.00/sq m/annum
78.00
-7.1
-20.4
8.25
Sweden
Stockholm
SEK 650.00/sq m/annum
59.51
0
0
8.25
Switzerland
Geneva
SFR 210.00/sq m/annum
139.11
0
5.0
6.75
Switzerland
Zurich
SFR 140.00/sq m/annum
92.74
0
0
7.00
Turkey
Istanbul
US$ 5.50/sq m/month
49.81
-8.3
-15.4
10.00
Ukraine
Kiev
US$ 6.50/sq m/month
58.87
-7.1
-43.5
17.00
UAE
Dubai
AED 30.00/sq ft/annum
66.35
0
0
13.00
UK
Birmingham
£ 5.75/sq ft/annum
66.94
-4.2
-3.4
8.25
UK
Glasgow
£ 6.25/sq ft/annum
72.76
-3.9
-3.9
8.50
UK
London – Heathrow
£ 12.75/sq ft/annum
161.06
0
-3.8
7.75
UK
Manchester
£ 5.75/sq ft/annum
66.94
0
-4.2
8.25
Country
City
Local
Austria
Vienna
Belgium Bulgaria
Page 4 ©2009, CB Richard Ellis, Inc.
a
Logistics take-up over the first half of 2009 was down on the levels recorded in 2008, reflecting widespread occupier uncertainty and a growing preference for renegotiating existing leases. Demand is fairly narrowly-based in sector terms, with supermarket chains playing a prominent role. Geographically, most transactions remain focussed on the Rhone corridor and Ile-de-France regions. Take-up is likely to remain orientated towards the 510,000 sq m bracket, motivated by a desire for an urban logistics location, rather than very large units. As a consequence take-up is likely to decline further over the remainder of the year.
2,800,000 Ile-de-France
Regions
2,400,000 2,000,000 1,600,000 1,200,000 800,000 400,000
H1 2 009
2 008
2 007
2 006
2 005
2 004
2 003
2 002
2 001
2 000
0
Madrid Prime Industrial Rent and Yield
SPAIN
Yield
% 8.5
105 100 95 90 85 80 75 70 65 60
8.0 7.5 7.0 6.5 6.0
Q2 2009
2008
2007
2006
2005
2004
2003
2002
2001
5.5
2000
€ /sq m/annum
Rent
Hamburg Prime Industrial Rent and Yield
GERMANY
Yield
75
% 8.0
70
7.5
65
7.0
60
Q2 2009
2008
2007
2006
2005
2004
6.0
2003
50
2002
6.5
2001
55
2000
€ /sq m/annum
Rent
Rotterdam Prime Industrial Rent and Yield
NETHERLANDS
Yield
75
% 8.5
70
8.0 7.5
65
7.0
60
6.5
Q2 2009
2008
2007
2006
2005
2004
2003
5.5
2002
50
2001
6.0
2000
55
a
Occupiers remain predominantly concerned with optimising existing capacity. In some markets, such as Frankfurt, logistics operators have increasing amounts of vacant space in existing buildings, which they are offering for sub-letting. Some are beginning to implement longer term strategies towards centralisation of operations in one site, which will tend to concentrate demand on the very best locations. Prime rents in the main markets have remained broadly stable over the past year at between €55-70 /sq m /annum. Prime yields have risen by 50 bps since the end of last year, but appear to have stabilised over the past quarter.
Demand for bulk commodities storage is fuelling the Rotterdam market, as higher futures prices encourage traders to store goods for later delivery. General logistics and small-scale industrial transactions remain subdued. Amsterdam has been weakening as container transport continues to fall in the face of weak world trade. However, the port is also an important bulk cargo location and increased demand for storage space could boost take-up. Prime rents in both markets held firm in the second quarter at €70 /sq m /annum. Activity is likely to remain subdued in the short-term pending clearer evidence of economic improvement. Page 5 ©2009, CB Richard Ellis, Inc.
October 2009
€ /sq m/annum
Rent
The problems in the consumer sector of the Spanish economy are having an impact because of the importance of retail activity to the logistics sector. With rents already under pressure – down by around 20% over the past year in both Madrid and Barcelona – this is likely to prolong the downturn at least into next year. Demand for smaller industrial units remains fragile as a result of the difficult conditions being encountered by SME's. Development activity has virtually ceased, with schemes unlikely to proceed without a significant pre-let.
MarketView EMEA Industrial & Logistics
FRANCE
France Logistics Take-up (Sq m)
MarketView EMEA Industrial & Logistics
MARKET BRIEFING While Belgium has seen a general reduction in demand for space from logistics operators, some sectors, such as retail, have proved more resilient and are still expanding their logistics networks. Rents for prime logistics space in Brussels are down 10% year-on-year to €43 /sq m /annum. With vacancy rates in Budapest already above 20% and likely to remain high for some time, and take-up down on last year’s levels, new speculative development has stopped. Prime rents have fallen to €60 /sq m /annum. Rents for modern, well-located logistics buildings in Copenhagen have edged back to DKK 500 /sq m /annum. With manufacturing and transport activities being reduced, and companies downsizing as a result, further rental decline is likely. Activity in the Dublin market generally remains subdued with most transactions comprising small lettings on very competitive terms and conditions. There has been some pressure on rental values in recent months with prime headline industrial rents now around €102 /sq m /annum, having reached €118 /sq m /annum in 2008. Demand in Geneva remains heavily focussed on the best quality space, weakening sharply for poorer quality buildings. Rents for prime buildings have remained stable at CHF210 /sq m /annum since the end of last year. Helsinki has seen a dip in demand over the past six months, with an accompanying rise in vacancy levels. Rents have dropped by 12% year-on-year to stand at around €117 /sq m /annum, with further decline expected. Take-up of logistics space in Lisbon improved in the second quarter but supply levels are also rising, partly through commencement of the government logistics platform. Prime rents have fallen by over 20% over the past year to €45.60 /sq m /annum and are expected to stabilise. The rental outlook in Milan is generally subdued, although occupiers’ desire to reduce costs by restructuring leases or rationalising building use is tending to favour the best and most flexible buildings. Rents have fallen by around 6% over the past year to around €58 /sq m /annum. The Moscow market is experiencing increased vacancy due to both new inventory entering the market and tenants defaulting on their lease obligations in existing schemes. Rents have fallen by 25% over the past year to €105 /sq m /annum, still some way below the level needed to support new development. Demand in the Oslo market remains strongest along the main road corridors to the north and south of the city. The prime rent has dropped to NOK 1000 /sq m/ annum for high quality buildings with more than six metres ceiling height. Even at these reduced levels, lower construction costs could still facilitate further new development. The Prague area has dominated recent leasing activity in the Czech Republic. Vacancy levels have seen only a marginal increase and, with a limited volume of new space expected to complete in the remainder of this year, further increases will be moderate. Prime rents have dropped 9% over the past year to €60/sq m/annum. Prime Stockholm rents remain stable at around SEK650 /sq m/ annum. The continuing trend for industrial companies to reduce headcount is likely to swell vacancy levels and exert some downward pressure on rents. Prime rents in the UK regional markets have generally seen a modest decline over the past year, although this has eased in some locations in the past quarter. Prime rents for the main markets lie in the range £5.75-6.50 /sq ft/ annum. The Vienna market is being driven by logistics’ companies desire to restructure for efficiency gains, which is favouring the best quality flexible buildings. Nevertheless leasing activity remains thin, and rents are broadly stable at €63 /sq m /annum. Rents in the Warsaw market have seen some slippage in the first half of this year, with take-up undershooting last year’s levels and continued delivery of new projects pushing up vacancy levels. At city-wide level, prime rents stand at around €60 /sq m /annum. The volume of space under construction is falling sharply, which should have a stabilising effect on rents.
October 2009
The Zurich market remains stable at CHF140 /sq m /annum, despite economic weakening and reduced foreign trade in particular. In response to pressure on revenues, an increasing number of companies are considering sale and leaseback opportunities in order to release capital.
Page 6 ©2009, CB Richard Ellis, Inc.
a
MarketView EMEA Industrial & Logistics
For more information regarding the MarketView, please contact: EMEA Research Nick Axford, Executive Director, EMEA Research CB Richard Ellis St Martin’s Court, 10 Paternoster Row London EC4M 7HP T. +44 20 7182 3039 nick.axford@cbre.com Richard Holberton, Director, EMEA Research CB Richard Ellis St Martin’s Court, 10 Paternoster Row London EC4M 7HP T. +44 20 7182 3348 richard.holberton@cbre.com Catherine Bushnell, Analyst, EMEA Research CB Richard Ellis St Martin’s Court, 10 Paternoster Row London EC4M 7HP T. +44 20 7182 3405 catherine.bushnell@cbre.com
EMEA Cross Border Industrial and Logistics Team Guy Frampton, Executive Director CB Richard Ellis Kingsley House, 1a Wimpole Street London W1G 0RE T. +44 20 7182 2150 guy.frampton@cbre.com James Markby, Associate Director CB Richard Ellis Kingsley House, 1a Wimpole Street London W1G 0RE T. +44 20 7182 2746 james.markby@cbre.com
October 2009
a
Page 7 ©2009, CB Richard Ellis, Inc.
MarketView EMEA Industrial
THE FIRST FULLY INTEGRATED APPROACH TO EUROPEAN INDUSTRIAL AND LOGISTICS PROPERTY SERVICES CB Richard Ellis’ European Industrial and Logistics team is the leading provider of industrial and logistics real estate services in the region, serving the world’s foremost investors, developers and occupiers. The team sets itself apart by its unique ability to provide a one stop solution to clients' investment, leasing and development needs across 34 countries – a completely integrated approach that enables clients to take a more strategic view of their network. No other adviser in the region is structured in this dynamic way and, what is more, the tangible advantages of CBRE's integrated approach extend across the world. Our clients also benefit from CBRE's global network which gives them the best access to buyers and sellers, together with the local knowledge and cultural insight required to assist in the selection of and transition to new locations. For further information visit www.cbreindustrial.com
October 2009
Disclaimer 2009 CB Richard Ellis Information herein has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to independently confirm its accuracy and completeness. Any projections, opinions, assumptions or estimates used are for example only and do not represent the current or future performance of the market. This information is designed exclusively for use by CB Richard Ellis clients, and cannot be reproduced without prior written permission of CB Richard Ellis.© Copyright 2009 CB Richard Ellis CB Richard Ellis is the market leading commercial real estate adviser worldwide - an adviser strategically dedicated to providing cross-border advice to corporates and investment clients immediately and at the highest level. We have 400 offices in 58 countries across the globe, and employ 24,000 people worldwide. Our network of local expertise, combined with our international perspective, ensures that we are able to offer a consistently high standard of service across the world. For full list of CB Richard Ellis offices and details of services, visit www.cbre.com
Page 8 ©2009, CB Richard Ellis, Inc.
a