european_industrial_occupier_conditions_q4_2012_slide_deck

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


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


15


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


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


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


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


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

This publication is the sole property of Jones Lang LaSalle IP, Inc. and must not be copied, reproduced or transmitted in any form or by any means, either in whole or in part, without the prior written consent of Jones

Lang LaSalle IP, Inc. The information contained in this publication has been obtained from sources generally regarded to be reliable. However, no representation is made, or warranty given, in respect of the

accuracy of this information. We would like to be informed of any inaccuracies so that we may correct them. Jones Lang LaSalle does not accept any liability in negligence or otherwise for any loss or damage

suffered by any party resulting from reliance on this publication.

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


COPYRIGHT © JONES LANG LASALLE IP, INC. 2013

Lee Elliott

Head of Research, EMEA

Tel. +49 20 31 47 12 06


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