Economic uncertainties dampen logistics market prospects

The report expects strong economic growth in the CEE and Nordic regions and a slowdown in activity in the rest of Europe. The events of the second half of 2011 have heavily impacted global economic prospects. As a consequence, logistics and industrial companies in the majority of Europe will seek to reduce costs through portfolio optimisation and relocation to more efficient space when break clauses permit. Despite the negative economic outlook, the second half of 2011 witnessed a strong level of take-up with eight million sqm registered in five of the leading European markets, up from 7.6 million sqm during the first half of the year. On an annual basis, logistics take-up in the UK, Germany, France, CEE and the Benelux reached 15.6 million sqm in 2011 compared to 11 million sqm of take-up in 2010. The biggest increase was registered in the Benelux, with a 90 per cent increase in take up.  France and Germany posted the second and third highest increase (respectively 48 per cent and 42 per cent y-o-y). Take-up in the UK and CEE region saw an increase of 15 per cent and 16 per cent respectively. Retailers continued to expand their supply chain in the CEE whilst UK manufacturers have become prominent in the market.
“Occupier focus is on prime buildings in the best locations, and the number of built-to-suit transactions increased in the second half of 2011. Despite this, developers remain reluctant to build on a speculative basis as high finance costs and void risks persist.  However, the slowdown in new construction, excluding the built-to-suits, has helped the market to recalibrate. Our analysis of 2011 reveals that rents remained stable in 19 out of the 20 European markets covered.  Looking forward to the end of 2012, we expect prime logistics rents to grow by a modest 0.8 per cent,” said Rob Hall, Head of DTZ CEMEA Logistics.
Industrial production growth seen across Europe in 2011 (2.8 per cent on average) is expected to be followed by a decline of 0.4 per cent in 2012, in line with the wider economy. The biggest change is expected in Germany, with growth in production declining from 8.1 per cent in 2011 to 0.8 per cent in 2012.
“Retail sales growth remained negative during 2011, registering a 0.2 per cent decline across the European Union. The data behind this average reveals Europe is polarised between the CEE and Baltic sub-region, posting growth above three per cent and the southern region - including Portugal, Italy, Greece and Spain - where the decline has ranged from -1.1 per cent to -8.8 per cent. We have however, recently witnessed business growth linked to e-retailing which has generated new orders in the UK, France and more recently Germany, where Amazon signed the four biggest transactions of 2011,” said Magali Marton, Head of DTZ CEMEA Research.
The logistics investment market has continued to recover with 10.4 billion Euro invested in 2011, up from 8.6 billion Euro in 2010. The UK market registered the highest investment volumes in Europe at four billion Euro, representing 39 per cent of European deals in 2011. The German investment market was less buoyant during the second half of 2011 with volumes close to 600 million Euro, lower than the 800 million Euro registered in the first half. The Nordics has maintained high transaction volumes, posting one of the highest levels of investment activity in 2011, close to 1.9 billion Euro. 
“On a relative basis, the industrial sector has outperformed over the year with 23 per cent growth during 2011, whilst the property market as a whole has only registered a modest 6% increase over the same period,” added Magali Marton.     
In turn, Rodica Tarcavu, Head of Industrial Department, DTZ Echinox, commented: “The rents for industrial and logistics spaces in Romania have dropped as well adjusting to the decreasing demand level, thus having in the first quarter of 2012 an average of 3.5 – 3.7 Euro/sqm/month for surfaces larger than 5,000 sqm in class A logistics spaces in Bucharest and Romania overall. The headline rents for modern industrial and logistics spaces in Romania are generally comparable to those quoted in other CEE capitals such as Prague, Budapest or Kiev, however these still remain lower than the levels applied in Warsaw.”