European Occupier Conditions
Occupiers face looming supply shortage
February 2013
Industrial
Introduction
• Welcome to our latest industrial occupier conditions slide deck which accompanies
our bi-annual industrial occupier report
• In this slide deck we present the latest trends in European logistics occupier
markets and highlight future opportunities
• The economic outlook section sets the background for the future decision-making
process in uncertain times
• The subsequent section on Occupational Markets examines the latest trends in
competition for space, choice and costs. The section features:
- Our European industrial clock, rental map, choice map and a market conditions matrix
- A range of other various data and graphics
• We trust you find this presentation a valuable tool in your decision-making process
2
Economic Outlook:Improving Prospects but Impact of Crisis Continues
4
• Improving global economic growth prospects encouraged by latest news and
economic indicators
• But on-going economic problems, particularly in the southern periphery, will
continue to drag down the overall Eurozone economy
• Downside risks to growth continue to include tight fiscal policy in many countries,
very high and rising unemployment and difficult credit conditions
• Eurozone manufacturing production continues to fall – the Manufacturing
Purchasing Managers’ Index has remained in contraction territory for one-and-a-
half years
• However, the rate of decline eased in January 2013, seeing the PMI rising to an
eleven-month high
Improving Sentiment But Challenges Remain
55
GDP Growth Forecast 2013
< 0%
0.0 – 0.9%
1.0 – 1.9%
2.0 – 2.9%
> 3.0%
0.8%
0.2%
1.0%
-1.4%
-1.1%
3.4%
4.3%
0.7%
1.9%
1.0%
0.2%
0.0%
0.8%
-0.4%
-0.1%
-2.6%
1.3%
-1.1%
Impact Of Crisis Remains…
0.7%
0.8%
1.7%
Source: Oxford Economics, January 2013
3.1%
3.7%
0.9%
2.3%
1.1%
6
Industrial Production Outlook Mixed Industrial Production (% Change)
7
-15
-10
-5
0
5
10
15
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
% Change
EU27 Exports
EU27 Imports
Export Growth Remains at Low Level but Accelerating
in Later Years
Source: IHS Global Insight, February 2013
Export Growth pa (%)
2012 2013 2014-2016
-4 -2 0 2 4 6 8
Poland
Netherlands
Belgium
Italy
Sweden
France
Hungary
Finland
Czech Republic
Russia
UK
Germany
Romania
Spain
EU27 Export and Import Growth pa (%)
F
60
65
70
75
80
85
90
95
100
105
110
2008 2009 2010 2011 2012 2013
-50
-40
-30
-20
-10
0
10
20
30
40
50
Economic Sentiment (LHS) Retail Trade Confidence
Industrial Confidence
8
European Confidence Indicators Improving
Source: European Commission, February 2013, Ireland n/a
Economic SentimentRetail Trade Confidence,
Industrial Confidence
Exception is Industrial Sub-index which Fell Slightly in January
European Occupational Markets:High Competition for Modern Space as Supply Remains Constrained
10
Occupier Market Constrained by Shortage of Available
Supply
• Declining occupier choice as new development continues to be demand-driven
rather than speculative
• Occupiers continue to face strong competition for modern space as demand
remains high compared with existing supply
• Significantly higher choice for secondary product
• Two options for occupiers:
− Secure built-to-suit agreements with less flexible lease conditions
− Occupiers less dependent on large modern requirements will be able to negotiate
shorter leases, lower rents and higher incentives for existing buildings
• Rental growth outlook varies significantly across European markets
• Rents are set to fall in markets where vacancy levels remain relatively high while
rental increases in select locations will be driven by dwindling modern supply
11
Overall Occupier Activity above Long-Term Average
European Warehousing Take-Up (million sq m)
Source: Jones Lang LaSalle, February 2013
0
2
4
6
8
10
12
14
16
18
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
million sq m
10-year Annual Average
12
Germany accounts for the largest share of take-up, Russia
sees the second highest take-up for the third year running
0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 5,500
Hungary
Czech Republic
Belgium
Poland
Italy
Spain
UK
France
Netherlands
Russia
Germany
.000 sq m
2012 2011 10-year average
0
2,000
4,000
6,000
8,000
10,000
12,000
WesternEurope
CEE
Distribution Warehousing Take-up >5,000 sq m (UK: >10,000 sq m)Source: Jones Lang LaSalle, February 2013
13
Source: Jones Lang LaSalle, February 2013
Edinburgh
London
Barcelona
Madrid
Milan
Budapest
Munich
Prague
Lyon
WarsawHamburg
Berlin
Frankfurt
Amsterdam
Rome
Moscow
Brussels
Paris
<5.0%
5.0 – 10.0%
10.0 – 15.0%
>15.0%
Birmingham
Rotterdam
Helsinki
Stockholm
Bucharest
Increase y-o-y
Decrease y-o-y
Stable
Increasing Number of Markets with Restricted Occupier
Choice for Modern Units
Vacancy Rates, Q4 2012
14
Development Activity Uneven Across Countries
Under Construction: Q4 2012 compared to Q4 2011
Source: Jones Lang LaSalle, February 2013
15
Source: Jones Lang LaSalle, February 2013
Continued Focus on Non-Spec Development Limits
Readily Available Stock for Occupiers
16
Leading to Further Falling of Modern Occupier Choice
12-Month Outlook
Current Choice Future Choice
Belgium Low
Czech Republic Medium
France Medium
Germany Low
Hungary Very High
Italy Medium
Netherlands Medium
Poland High
Russia Low
Spain High
UK High
Source: Jones Lang LaSalle, February 2013
Occupiers Will Continue to Face Strong Competition -
Driven by Structural Changes
17
Five key drivers of future demand
1. The impact of demographic change
2.Optimisation of supply chains through the use
of seaports, airports, rail and road
3.The evolution of manufacturing: the relocation
of manufacturing closer to domestic markets
4. Retail change: the growth of (multi-channel) retail
5. Maturing markets: CEE and Russia
Expected Rental Declines in Select Markets Creating a
Window of Opportunity in 2013
18
• The bleak economic outlook and continued pressure on costs kept headline
rents under slight downward pressure during Q4 2012
• Industrial floorspace is now cheaper in a number of locations compared with the
end of 2011, i.e. Warsaw, Barcelona, Madrid, Amsterdam, Milan and Budapest
• The latest forecasts point to moderate rental increases this year in select
markets such as Frankfurt, Hamburg, Amsterdam and London driven by further
decreasing choice
• Meanwhile, large rental declines are expected in Moscow, Warsaw and Madrid
this year driven by the high level of modern supply
• However, a window of opportunity in some of these markets will start closing in
2014 when rental growth is expected to accelerate
19
European Rental Map, Q4 2012
Source: Jones Lang LaSalle, February 2012
Edinburgh
London
BarcelonaMadrid
Milan
Budapest
Munich
Prague
Lyon
Warsaw
Hamburg
Berlin
Frankfurt
Amsterdam
Rome
102
Moscow
54
75
50
77
72
Brussels
Paris
> 10%
5 – 10%
< 5%
67
46
52
67
173
73
55
5685
Birmingham
76
Rotterdam
62 43
55
54
Helsinki
96
Stockholm
102
Dublin
59
Prime Warehousing Rent € / sq m pa, Q4 2012
Rents decreasing
Rents stable
Rental Changes
Rents increasing
% Rental Changes (Y-o-Y)48
Bucharest
20
Rental Growth
Slowing
Rents
Falling
Rental Growth
Accelerating
Rents
Bottoming Out
EMEA Industrial Property Clock, Q4 2012
Source: Jones Lang LaSalle, January 2013
Prime Rent Western Europe
Prime Rent Eastern Europe
Prime Rent Middle East and Africa
Jeddah, Riyadh
Abu Dhabi, Barcelona, Belgrade, Bratislava, Bucharest, Dubai, Dublin, Glasgow, Helsinki
Kiev, Lille, Lyon, Madrid, Marseille, Milan, Paris, Rome, Stockholm, Stuttgart
Istanbul
London, Warsaw
Athens, Birmingham, Budapest,Edinburgh, Leeds, Manchester, Zagreb
Amsterdam
Antwerp, Berlin, Brussels, Copenhagen,Moscow, Oslo, Rotterdam
Lisbon
Dusseldorf, Frankfurt, Hanover, Munich, Prague
Johannesburg
Cologne, Hamburg
21
0
20
40
60
80
100
120
140
160
180
200London
Moscow
Amsterdam
Munich
Madrid
Brussels
Prague
Budapest
Paris
Milan
Warsaw
Net Effective Rent Prime RentSource: Jones Lang LaSalle, February 2013
EUR / m² pa
10%
% share = incentives as % of prime rent
8%15%
45%9%8%
2%
7%
6%5%8%
Favourable Incentives can still be Negotiated in Certain
Locations, particularly for Second-Hand StockIncentives most generous in Paris, Madrid and London
-10
-8
-6
-4
-2
0
2
4
6
8
10
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
22
Uneven Rental Growth is Expected over the Coming
Years
European Logistics Rental Growth (% pa) Logistics Rental Growth (% pa 2012-2016)
F
Source: Jones Lang LaSalle, December 2012
0.2
-1.1-0.7
-0.5-0.4
0.00.20.20.30.40.5
0.70.70.70.80.91.01.11.1
1.31.4
1.92.4
3.1
-2.5
-4 -3 -2 -1 0 1 2 3 4
Europe
MadridAmsterda
ParisLyon
WarsawBudapestRotterdamBirminghaMunich
ManchestBerlin
BarcelonaMoscowMilan
PragueDüsseldorHamburgLondonAntwerpFrankfurtStockholm
OsloBrusselsDublin
2323
European Market Conditions Matrix - Core
MARKET TIMELINE COMMENTS
Amsterdam 2013 2014 2015 Rents are likely to rise this year driven by reducing choice.
Antwerp 2013 2014 2015Rents are now close to pre-crisis levels and are expected to stabilise at this level during the next two
years.
Barcelona 2013 2014 2015Industrial space was cheaper at the end of 2012 compared with 2011. We expect prime headline rents to
remain unchanged in 2013 before they rise next year.
Berlin 2013 2014 2015Rents are expected to stabilise at the current level this year before they rise in 2014 driven by limited
supply.
Birmingham 2013 2014 2015As occupier demand remains in balance with available supply, rents are expected to be broadly stable
over the next three years.
Brussels 2013 2014 2015 We expect rents to remain broadly stable in 2013 and 2014 sustained by limited available supply.
Budapest 2013 2014 2015Rents, which are now lower compared with the previous year, are expected to stabilise at this level over
the next two years.
Dublin 2013 2014 2015Rents, 50% below their peak levels in 2008, are expected to be stable throughout 2013. However,
reducing choice will contribute to rental increases in 2014 and 2015.
Dusseldorf 2013 2014 2015 Following no rental changes in 2012, we expect rents to edge up over the next two years.
Frankfurt 2013 2014 2015 Rents were unchanged throughout 2012, however they are set to rise this year driven by limited choice.
Hamburg 2013 2014 2015 Driven by continued high competition for space, rents are anticipated to edge up in 2013 and 2014.
Helsinki 2013 2014 2015With demand and supply balance expected to remain broadly unchanged, we expect stable rental levels
over the next two years.
Tenant Favorable Market
Neutral Market
Landlord Favorable Market
Source: Jones Lang LaSalle, February 2013
2424
European Market Conditions Matrix - Core
MARKET TIMELINE COMMENTS
London 2013 2014 2015 Rents are expected to rise in London this year driven by reducing occupier choice.
Lyon 2013 2014 2015 No significant rental changes are expected over the next three years.
Madrid 2013 2014 2015 We expect costs to remain competitive over the next two years due to high supply levels.
Milan 2013 2014 2015Rents, now significantly lower compared with last year, are expected to stabilise at the current level in
2013 before they rise in 2014.
Moscow 2013 2014 2015 Rents are set to fall in Moscow this year as the supply pipeline is improving.
Munich 2013 2014 2015We expect rents to decline this year driven by slowing competition. However, declining choice levels
next year will push rental levels upward.
Paris 2013 2014 2015With demand and supply balance expected to remain broadly unchanged, we expect stable rental levels
over the next three years.
Prague 2013 2014 2015 Rents will remain broadly unchanged over the next two years sustained by relatively strong competition.
Rome 2013 2014 2015We expect rents to stabilise at the current level this year before limited supply contributes to rental
increases in 2014.
Rotterdam 2013 2014 2015 Stable rents are expected over the next three years sustained by decreasing modern supply.
Stockholm 2013 2014 2015 No major rental changes are expected in 2013. However, rents are set to rise from 2014 onward.
Warsaw 2013 2014 2015We expect costs in Warsaw to remain very competitive over the next few quarters due to relatively high
choice levels.
Tenant Favorable Market
Neutral Market
Landlord Favorable Market
Source: Jones Lang LaSalle, February 2013
25
Occupier Market Constrained by Shortage of Available
Supply
• Declining occupier choice as new development continues to be demand-driven
rather than speculative
• Occupiers continue to face strong competition for modern space as demand
remains high compared with existing supply
• Significantly higher choice for secondary product
• Two options for occupiers:
− Secure built-to-suit agreements with less flexible lease conditions
− Occupiers less dependent on large modern requirements will be able to negotiate
shorter leases, lower rents and higher incentives for existing buildings
• Rental growth outlook varies significantly across European markets
• Rents are set to fall in markets where vacancy levels remain relatively high while
rental increases in select locations will be driven by dwindling modern supply
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Contact:Alexandra Tornow
Associate Director, Logistics and Industrial Research, EMEA
Tel. +49 40 35 00 11 339
Email: [email protected]
Nejc Jus
Research Analyst, Logistics and Industrial Research, EMEA
Tel. +44 20 31 47 12 54
Email: [email protected]
COPYRIGHT © JONES LANG LASALLE IP, INC. 2013
Lee Elliott
Head of Research, EMEA
Tel. +49 20 31 47 12 06
Email: [email protected]