Em parceria com In association i h
2009
Industrial Market Report
Outlook
2
Economy
2
Stock and Supply
3
Demand and Take-Up
5
Rents
6
Anaysis By Zone
6
Investment Market
8
Trends
9
Industrial Market - Lisbon
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Outlook
Economy
Given the economic downturn, it is unsurprising that the Industrial and Logistics market has slowed down dramatically, with operators adopting a wait-and-see attitude. 2009 will be a difficult year for all parties and although we expect take-up to fall, we expect rental values will hold steady overall.
Following the credit crunch caused by the US sub-prime crisis in late summer 2007 European economies have all been adversely affected, although some more than others. Countries such as the UK, Spain and Ireland have seen a significant downturn whereas less overheated economies such as Germany (which had strong growth in the first quarter 2008) and Portugal have not yet been so dramatically affected.
Our research shows that take-up for 2008 in Lisbon reached around 240,000 sq m, slightly higher than 2007. In 2009 however, the slowdown in economic activity and more specifically in the trade flows and industrial sector will create a difficult climate for letting activity and we expect take-up in 2009 to fall by up to 20-30% by comparison. A number of major logistics pre-let deals have taken place however, for occupation in 2009 and in 2010. Demand in 2009 will mainly be driven by the reorganisation of supply chains. Additionally, with economic conditions forecast to remain tight we believe that outsourcing needs will increase further which will allow companies to concentrate in their core businesses. In terms of speculative supply there are a limited number of projects, as most developers currently focus on trying to secure pre-lets based on very swift delivery programmes. Two major private-sector speculative logistics hubs, part of the Governments strategic Plano Logistico or Logistical Plan, are launching in 2009: LOGZ – Atlantic HUB in Poceirão, south of Lisbon, and Abertis Logistics Park Lisboa, north of Lisbon. In the light of the lowering of speculative supply and the already low vacancy rate of 4% (referring to logistics space only, excluding basic warehousing), there is potential for secondary rents to increase from their current level in some zones, as the cost of construction will determine delivery prices. At the top end of the market however, we actually expect rental values to fall slightly, as we consider rental values above €4.75 to be unsustainable during a recession.
Prepared by Abacus in association with Savills February 2009
Since 2000, the Portuguese economy has been relatively weak, and in 2003 GDP contracted almost 1%. Since then the country has undergone a fragile but sustained growth pattern and the 2007 GDP figure of 1.9% was Portugal’s best performance since 2001. Unfortunately growth expectations have reduced over the course of 2008 with the slowing external environment and the lack of domestic consumer and business confidence. Portugal is expected to enter into recession in 2009. The consumer price index increased significantly over the course of 2006 and 2007 to a peak of 3.4% in June 2008, but by October the figure had fallen to 2.3% and the annualized 2008 figure is expected to be 2.7%. Private consumption is also expected to have fallen from 1.5% in 2007 to 1.4% in 2008 and will probably fall further in 2009, before increasing again in 2010 as household disposable income is expected to benefit from normalization in financial markets through a relief in debt service. Unemployment rates are forecast to rise from 7.8% in 2008 to 8.8% in 2009. In summary, Portugal has not escaped the global economic downturn although it is unlikely to be as adversely affected as many other countries given that it has not experienced overly strong growth levels in previous years. Nonetheless, Standard & Poor’s recent downgrading of Portugal’s status reflects the concern over budget deficit increases and the poor competitiveness of the economy as a whole.
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Industrial Market - Lisbon
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Macroeconomic Indicators - Portugal Economics
Zones Map
10 8 6
(%)
4 2 0 -2
2003
2004
2005
2006
2007
2008
2009
2010
-4
CPI Private Consumption
GDP Unemployment Rate
Source: European Commission (2009), Interim Forecast.
Stock and supply Stock Lisbon’s industrial and logistics market continues to grow, the sluggish performance of the traditional warehouse sector being out-performed by the ever-expanding logistics sector. This is reflected in the increase in stock due to the development of high-bay logistics units (see table below). We estimate the current stock of warehouses in greater Lisbon to be approximately 3.2 million sq m, an increase of about 3% since last year.
The North and South Lisbon zones are the most significant in terms of total stock, as shown in the graph below. Stock by Zone 1.400.000
Top 10 Logistic Operators by Area
1.200.000 1.000.000 800.000 sq m
Logistics Operators DHL Excel Supply Chain Rangel Gestiretalho DLS - Distribuição Luis Simões Logista Portugal TAS FCC Logistica Mclane Portugal S-Log - Serviços Logistica CTT Expresso Source: Logística Moderna (2008)
Number Storage GR Storage Platforms Area Area (08-06)% 12 180.000 50% 17 150.000 29% 13 131.418 8 115.000 0% 18 85.000 113% 7 85.000 42% 6 84.500 -4% 5 60.000 74% 2 55.000 14 50.000 7%
600.000 400.000 200.000 0 Northern Lisbon
Central Lisbon
Western Lisbon
Southern Lisbon
Source: Abacus in association with Savills.
The Lisbon area can be divided into four zones: Western Lisbon, Central Lisbon, North Lisbon and South.
The information above refers to industrial and logistics warehouses with a clear internal height of more than 6 metres and in which the actual building occupies a minimum area of 1,000 sq m.
Supply and Available Space In the beginning of 2009, the total of new quality supply available (minimum 1,000 sq m) stood at about 131,500 sq m, representing a very low vacancy rate of 4% (based on logistics space in relation to the entire market). Of that, 74% is located in the South Lisbon zone. Compared
Prepared by Abacus in association with Savills February 2009
3
Industrial Market - Lisbon
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to last year, this represents a very significant decrease in available space of around 35%. Available Grade A Supply: Evolution 250.000
200.000
m2
150.000
100.000
50.000
0 2007
2008
2009 E
2010F
2011F
Source: Abacus in association with Savills.
Our research clearly shows available space over the next two years will fall significantly to less than 80,000 sq m for the whole Lisbon area, which we classify as a significantly undersupplied market. This trend is the result of the combined effects of continued strong demand resulting from rationalization, and a slowing down in supply. We estimate there is a total of around 100,000 sq m coming to market in 2009 and 2010, mainly split between the North Sector (44%) and the South Sector (50%). As the market matures and both operators and developers move towards ever-higher specifications to comply with efficiency and environmental requirements, developers are become more risk-averse in terms of the projects that come to the market. Most developers are still nervous about speculative development, and are increasingly reluctant to start building without having pre-let part of their projects. The major supply “on demand” projects are identified below:
“Plano Logístico” The principal influence on the future supply of logistics space over the next few years will be the projects within the Government’s National Logistics Plan, or Plano Logístico. The idea is to initiate public-private or just private partnerships to create major logistics hubs which will enable Portugal to be a future link in intercontinental and European supply chains, ensuring the provision of seamless logistics and transport services. This strategic logistics platform network will link the principal consumer/manufacturing centres and main frontiers with transport infrastructures, using road, rail and sea freight. There are plans for up to 12 logistics platforms around the country, supplemented by 2 air freight centers (AFC’s) in Lisbon and in Oporto, comprising a potential total of over 1,100 hectares and an estimated investment of around 1,688 million euros. There are 2 of these hubs being developed in the Greater Lisbon Area, namely: - The 100 Ha Abertis Logistic Park, in Castanheira do Ribatejo 25 km north of Lisbon, will deliver its first 20,000 sq m speculatively in 2010. The project is entirely financed and managed by Abertis, the Spanish conglomerate with interest in construction, toll-road operator and logistics (Abacus Savills have been appointed agents). - The 262 Ha LOGZ – Atlantic HUB in Poceirão, 45 km south of Lisbon, is being developed by a consortium of several private companies such as Mota-Engil, Bento Pedroso, Espírito Santo Resources and Opca. The first phase of the scheme (262 ha) is planned to start at the end of 2009, and the first warehouses are expected to be completed in 2011. The construction is unlikely to be speculative.
Future Supply “on demand”
Source: Abacus in association with Savills.
Prepared by Abacus in association with Savills February 2009
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Industrial Market - Lisbon National Network of Logistics Platforms
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Demand and Take-Up Lisbon’s Industrial and Logistical market continues to grow on the back of the ever-expanding logistics sector. Building obsolescence and outsourcing to specialist suppliers has created a constant demand for modern, efficient, high-bay logistics warehouses. Despite the significant downturn in economic activity towards the end of 2008, our research indicates that take-up for 2008 posted a slight increase of 5.7% compared with 2007, at around 240,000 sq m. Of this the majority of space (60%) was located in the Northern Sector. The 10 major deals done in 2008 are set out below: Top 10 Take- Up Deals
Source: Abacus in association with Savills
Source: MOPTC (2007), Portugal LogĂstico
Prepared by Abacus in association with Savills February 2009
We expect take-up in 2009 to fall by up 20-30% by comparison with last two years. For 2009 and 2010 there are already two major deals done, 65,000 sq m to FCC Logistics in Azambuja and 110.000 sq m to Modis (Sonae) in Alverca, both in the North Sector. Much of this activity is provoked by the poor quality of the existing stock, and the drive for efficiency as multiple operations are brought under one roof. The outsourcing market is however extremely competitive and whilst demand is strongly influenced by the quality of the building and access, competitive pricing is still the principal factor in decision-making.
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Industrial Market - Lisbon Breakdown of Take-up by Zone
Source: Abacus in association with Savills
Rents The oversupply of industrial space in the last 2-3 years resulted in many deals being concluded at rents below the effective cost of construction. Normally the market would resist such a scenario, as developers would simply be unable to sign deals that created negative cash flow, but many schemes had been pre-sold to local investment funds who accepted lower returns through lower income streams, as a better alternative than vacant property. Our research shows that a significant number of logistics deals were closed at rents from € 3.20-3.60/ sq m. Nowadays as speculative supply reduces and demand remains firm, many developers are trying to raise average rental values to nearer €3.75-4.25/ sq m. For 2010, when speculative supply will be limited to the first warehouses from Abertis, there will be some upward pressure on values. We consider it likely that asking prices for new warehouses in prime locations will rise to values of €4.5-€5.5/sq m.
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Analysis by Zone - Northern Lisbon – Established warehousing area, one that has been the principal beneficiary of the motorway network improvements, and accounts for 36% of the total stock. Comprising the industrial areas around the CREL ring road as far as Carregado, the area forms the heart of the logistics and distribution markets, with many major logistics operations such as DHL/Exel, GEFCO; Rangel, FCC, Modis and Luis Simões. Availability of grade A warehouses decreased last year, and our research shows that the pipeline of speculative space until end-2010 will probably be around 45,500 sq m (including 20,000 sq m from Abertis). In terms of take-up this zone was responsible for around 60% of all transactions in 2008. Rental values vary between €3.75 and €5.00 sq m/month. - Western Lisbon – Historically one of the more established warehousing locations based mainly to the north of Cascais and Sintra, representing around 27% of the Lisbon’s total stock of warehousing. The huge improvement in the motorway network around Lisbon has opened up new markets and much of the traditional small, medium industrial space users, naturally price sensitive, have relocated to other less congested zones, and rents have suffered as a result. The available grade A supply (9,000 sq m) and the future supply is scarce. Nowadays the demand is mainly composed by local small-scale users. The volume of transactions in 2008 reached more than 20,000 sq m, accounting for 9% of total Lisbon take-up. Rental values vary between € 4.25-5.75/ sq m / month. - Central Lisbon – Comprising the area round the airport and the riverfront docks, this zone represents only 4% of the total market. This market has maintained stability over the past couple of years simply due to very limited supply. Rental and sale values are very high compared to peripheral zones, but the drive to costeffectiveness, the lack of parking space, the limitation of truck’s circulation inside the city and the obsolescence of most of the building stock is forcing more and more companies to relocate to the suburbs. In terms of takeup in 2008 it represented around 1%, and decreased since 2007. Rental values vary between €5.00 and €6.00/sq m/month.
Prepared by Abacus in association with Savills February 2009
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Industrial Market - Lisbon
Available Grade A Supply By Zones – 2007 and 2008 140.000 120.000 100.000 80.000
sq m
Southern Lisbon – Already representing 33% of the total stock, this relatively new area comprises the southern side of the Tagus estuary, including Montijo (developments such as LogisPark and Passil, home to El Corte Ingles, Area, Aldi and Logista) and Palmela with the huge Ford plant at Autoeuropa, responsible for 1% of Portugal’s GDP. The zone provides a natural expansion zone for the logistics market due to flat topography, competitive prices and good availability of land. Opened up by the completion of the Vasco da Gama bridge over the Tagus almost 10 years ago, the excellent motorway network and virtually no traffic congestion have provided developers the opportunity to provide the high-bay space that occupiers are looking for, at around €4.00/sq m/month. Availability fell sharply over 2008 and we estimate speculative supply until 2010 will be around 52,000 sq m. In terms of take up this zone was responsible in 2008 for around 30% of total Lisbon take-up, a decrease in relation to 2007.
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2008 2009
60.000 40.000 20.000 0 Northern Lisbon
Central Lisbon
Western Lisbon
Southern Lisbon
Source: Abacus in association with Savills
Speculative Supply (2009-2010) 50.000 45.000 40.000 35.000 30.000 sq m
The area will grow in importance over the next few years with the development of: - Lisbon’s new airport at Alcochete, due to open in 2017, alongside which are 6,500 Ha of land reserved for commercial uses of which much will be logistics. - The new rail-link to the expanding Sines harbour to the south. - TGV – Due to open in 2013, the first phase of the TGV network will be Lisbon – Caia, to link to Madrid. This rail infrastructure will be developed by a PublicPrivate partnership with an estimated cost of €641 million. - The largest logistic hub in the Plano Logístico Nacional, in Poceirão near Palmela, occupying 400 ha and with direct rail links to Sines and Spain on the TGV line.
25.000 20.000 15.000 10.000 5.000 0 Northern Lisbon
Central Lisbon 2009
Western Lisbon
Southern Lisbon
2010
Source: Abacus in association with Savills
Estimated Take – Up 2007 and 2008 by Zone
Source: Abacus in association with Savills
Prepared by Abacus in association with Savills February 2009
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Industrial Market - Lisbon
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Asking Prices - 2009 Prime Yields 10,0% 9,5% 9,0% 8,5% 8,0% 7,5% 7,0%
Source: Abacus in association with Savills.
6,5% 6,0% 5,5% 5,0%
Investment Market
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009F
Source: Abacus in association with Savills.
Europe in general is experiencing uncertain times in the commercial property investment market with transaction volumes down very significantly, approximately 60% in 2008 compared to 2007. As in 2007, the market in 2008 was dominated by the domestic funds, while the presence of foreign investors reduced sharply. Transaction volumes were low with only 49 million of investment deals, reflecting the withdrawal from the market of investors after the summer. During the last quarter of 2008 a significant number of foreign investors have put a temporary hold on European investment although it would appear that the Portuguese market still attracts a good level of interest, given its relative stability in relation to clearly overheated markets such as Spain and the UK. We consider that prime yields have risen since last year to around 7.75% for the best schemes.
Main investment Deals - 2008
Source: Abacus in association with Savills.
There is no clear evidence yet that yields have moved out as significantly as in Spain where there is a risk of a serious and prolonged recession. Despite the overall favourable fundamentals of the Portuguese logistics market, the de-leveraging that will necessarily take place in all markets over the next year or so will inevitably force yields out further. In summary, the Industrial and Logistics investment market remains on partial standby as investors assess the worsening economic climate, hoping to take advantage of a market where they can acquire high quality assets producing substantially better cash returns than were available over the past few years. Due to the lack of financing, the sale-and-leaseback market is likely to provide the majority of transactions in 2009.
Prepared by Abacus in association with Savills February 2009
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Industrial Market - Lisbon
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Trends
Summary
We forecast the following trends will become apparent during the course of 2009:
Lisbon’s Industrial and Logistics market continues to grow, with an emphasis on Logistics and a decrease in industrial warehouses, as outsourcing of distribution becomes more widely established even amongst nonmultinational businesses. Developers adapt themselves as the level of maturity of the market increases, with less speculative development and a significant increase in preletting. The only exceptions are the major regional distribution hubs, included in the Government’s National Logistics Plan or Plano LogĂstico Nacional, which are privately financed and will be totally speculative. The key drivers in the market are better quality of buildings and cost efficiency (more and more commonly calculated in cost per cubic meter).
Supply - Decrease in speculative developments; - Focus on quality; - Increasing Importance of the Inter-modal (integrated) facilities; - Vacancy Rates to fall; Demand - Demand driven by price, with quality and access of secondary importance; - Demand steady in logistics sector as outsourcing and restructuring of operators continues; Rents - Prime rents under pressure as the economy weakens further; - Secondary rents for new-build likely to rise as vacancy rate reduces and pricing becomes subject to construction costs;
High vacancy rates in 2006-7 led to a fall in secondary rental values to below replacement cost in some sectors, which naturally held prime rents back. Vacancy rates have now fallen to 4% overall and we expect secondary rents to increase again allowing prime rents to grow as the market begins to become demand-led.
Yields - Yields steady for prime logistics market, as supply fundamentals improve; - Portfolio diversification should underpin demand from domestic investors as the sector matures;
cados
Prepared by Abacus in association with Savills February 2009
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Em parceria com In association
Consultores Imobiliários Chartered Surveyors
Lisboa · Lisbon Edifício Atrium Saldanha Praça Duque de Saldanha 1 - 8ºB 1050-094 Lisboa Tel.: (+351) 213 170 577 Fax: (+351) 213 530 554
Porto · Oporto Centro de Negócios do Freixieiro Edifício Europa Rua Antero de Quental 236, Sala 111 4455-586 Freixieiro - Matosinhos Tel.: +351 229 996 500 Fax: +351 229 996 509
www.abacusproperty.pt
Contactos · Contacts
Jerry Harris jharris@abacusproperty.pt Tlm. (+351) 917 517 117
Andrea Correia acorreia@abacusproperty.pt Tlm. (+351) 917 599 106
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