According to Colliers International’s EMEA Industrial & Logistics Hubs report, demand for industrial and warehouse property rose in 50% of EMEA markets in H1 2018, up from 35% in H2 2017, driven by positive occupier sentiment, and despite challenges in the overall economy such as protectionism fears and trade tensions between the US and close trading partners in the EU.
Declining industrial confidence across European markets has not dented demand for warehouse space in EMEA, with logistics services companies competing fiercely over property, particularly near infrastructure hubs and in last mile locations close to population centres, due to the rise in e-commerce.
Vacancy decreases driven by lack of new completions
“Vacancy rates remained low in H1 2018, with the vacancy average across all markets surveyed at 5.7%, and sub-3% vacancy rates found in cities including Munich, Bucharest, Copenhagen, Prague and Barcelona, among others,” said Damian Harrington, Head of EMEA Research at Colliers International. “The strong demand meant that the percentage of markets seeing decreases in take-up fell from 54% in H2 2017 to 46% in H1 2018. This growth in demand could have been higher, but was constrained by the lack of quality, modern space available to occupiers.”
Construction activity was weak, although conditions improved relative to the end of 2017, and the percentage of markets registering falls in their development pipelines decreased from 40% to 32%. There were big discrepancies among different EMEA markets: some CEE regions, like Central Poland, displayed robust construction pipelines, while in Western European cities such as Stockholm, Munich and Berlin, pipelines remained very low, at sub-100,000 sqm.
Tenant-favourable markets drop to only 18% of the EMEA total
Despite a cooling of rental growth, limited development pipelines and availability continue to push the drive to landlord-favourable markets. They accounted for 41% of markets as of the end of H1 2018, compared to only 31% of the total two years ago. The percentage of neutral markets has remained broadly the same during the two-year period, ending at 41% of markets by end of June 2018. Overall, this has seen the relative number of tenant-favourable markets drop to only 18%.
Outlook remains positive for the industrial and logistics market in EMEA and Hungary
Fierce competition for warehouse space and very limited availability will continue to weigh heavily on activity over the remainder of 2018, and most likely well into 2019. Looking at the macroeconomic picture, there are a number of uncertainties ahead that weigh heavily on the outlook for industrial and logistics real estate. In the UK, there are many unknowns around the outcome of the Brexit negotiations and the impact on supply chains. In the EU27, Germany and the Eastern European automotive regions would be disproportionally affected by the trade wars with the US.
“Generally speaking, occupiers looking for industrial accommodation in key geographies like Germany, the Benelux region and Scandinavia must prepare for further rental uplifts, but the market is stabilising in places. In cities including Stuttgart, Munich, Barcelona and Budapest, healthy demand will be clashing with reduced supply, but in cities like Lodz in Poland, active pipelines could be holding back uplifts in rental rates,” commented Harrington.
“In Hungary, although there is still limited number of well-prepared speculative projects, new developments are expected. Due to the market absorption during 2018, the vacancy rate has dropped to 3.5% by mid-year, which is record low in the Hungarian industrial market. Even if some vacancy is expected in existing buildings during the next coming 1 year, many developers are working actively on planning / permitting / constructing of new speculative buildings. At least 123,000 sqm of speculative space will increase the stock by the end of 2019, where 36,000 sqm is already secured by prelease agreements,” added Csaba Dobos, Senior Associate of Industrial Agency at Colliers International Hungary.
