With around three million sq m taken-up, occupier demand for assets of over 5,000 sq m in size (10,000 sq m in the UK) held steady in Q3 2012. Nevertheless, activity remains uneven across Europe and over the first nine months of 2012 was down 15% on the same period last year.
“Prolonged uncertainty about global economic growth and the Eurozone crisis has led to a general slowdown in take-up levels. Slowing activity is driven by limited modern supply and tightening occupier conditions for build-to-suit schemes. With cost and risk management remaining on top of the occupier and landlord agendas, negotiations are starting to become tougher. Despite this, we continue to see plenty of demand in the market as occupiers re-align their existing supply chains to meet the requirements of internet-retailing and multi-channel distribution. Therefore, we currently see consolidation in take-up taking place on a high level” comments Paul Betts, Head of Logistics & Industrial EMEA at Jones Lang LaSalle.
Overall, take-up volumes remained volatile in Q3 2012 with both upward and downward trends in evidence. Significant increases in activity were seen in the UK (+68%), the Czech Republic (+56%), France (+54%) while Poland and Russia both recorded a 35% uplift quarter-on-quarter. Meanwhile only three markets saw rising year-on-year take-up over the first nine months: the Czech Republic (+18%), the Netherlands (+16%) and somewhat surprisingly Spain (+8%). Despite a slightly weaker activity, Germany (-4%) and France (-8%) proved relatively resilient.
Following two quarters of slightly softening completion activity, new completions reached 1.9 million sq m in Q3 2012, 34% more than in the previous quarter. During the first nine months of 2012, overall completions totalled 4.9 million sq m, 33% ahead of the same period last year but still more than 20% below the 5-year average. However, prolonged tight finance for new developments in combination with increased occupier caution has kept new development starts below 1.6 million sq m in Q3, down 35% quarter-on-quarter. As a result, total floorspace under construction by end September amounted to 4.7 million sq m, down 10% over the quarter and a marginal 1% year-on-year.
“Whilst we continue to report robust occupier demand for new build stock, with development activity still facing significant headwinds we expect the momentum in occupier activity to slow as required conditions such as lease length and the overall rental package from occupiers and developers are drifting further apart” said Alexandra Tornow, Head of EMEA Logistics & Industrial Research at Jones Lang LaSalle. Take-up for the full-year 2012 is now expected to remain below 13 million sq m. This would reflect a 15% decline year-on-year albeit it would be still 30% ahead on the 10-year average.
“Looking ahead, we see an exciting long term market perspective as global supply chains will continue to grow and change. Over the next few years, in particular internet retail, the rising scale of container shipping and a shift in manufacturing locations but also the growth of new markets will boost occupier demand” Alexandra Tornow adds.
Meanwhile, prime logistics rents remain under downward pressure over the short term. Although most markets recorded stable rental levels in Q3 2012, the Jones Lang LaSalle pan-European index edged down 0.4% over the quarter and now reflects a 1.0% decline year-on-year. Indeed, by Q3 2012, annual rental growth was limited to Antwerp (+2.1%), Brussels (+9.8%) and Frankfurt (+1.7%) whilst rents fell in seven of the 25 index cities (Amsterdam, Barcelona, Budapest, Dublin, Leeds, Madrid and Manchester).