Topped only by Tokyo, London is the second most expensive industrial real estate market in the world as fierce competition for modern facilities from rapidly growing e-retailers and expanding third-party logistics operators (3PLs) drives demand, according to new research from global property advisor CBRE Group, Inc.
CBRE’s quarterly survey, which tracks the top 10 prime global logistics markets, reveals Tokyo is the most expensive (US$20.02 per sq ft per annum) market, followed by London ($19.12 per sq ft per annum) and Singapore ($17.13 per sq ft per annum).
Rents in eight of the top 10 most expensive markets were stable during Q2 2013, with rental values growing in Tokyo and Hong Kong. Due to demand from e-retailers and expanding 3PLs, Tokyo’s rents expanded 2.2% during the quarter. Hong Kong grew by 2.6% for the quarter, due to exceptionally tight supply of available space. Third-ranked Singapore also faced a shortage of good-quality stock amid strong demand.
Prime rents in most European markets, including London, Paris, Stockholm, Moscow and Helsinki, held steady despite a challenging economic environment. However, demand for highly specified, well situated warehouses remains robust. Occupiers looking to expand have limited options that met their specifications, prompting many to remain in their existing premises.
Dr. Raymond Torto, CBRE’s Global Chief Economist, commented:
“Retailers continue to serve as a significant source for global logistics demand in many markets, including London, Tokyo, Singapore, and Hong Kong. Meanwhile, the growth of e-commerce and growing international demand have benefited cities such as Tokyo and Brisbane.
“The shortage of high-quality, modern stock has also helped to support rents across many markets. While several cities have considerable supply pipelines, including Tokyo, Perth, Brisbane and Stockholm, there is little concern of oversupply due to strong demand. This was evidenced by the high level of pre-leasing commitments in Tokyo and Perth.”
London ($19.12 per sq ft per annum) saw an increase in activity for units of 100,000 sq ft or larger. Retail occupiers, followed by 3PLs, continue to be the most active users throughout the market, though the lack of supply held back take-up. As a result, London’s prime rents were stable during the quarter.
Amaury Gariel, Managing Director, EMEA Industrial & Logistics, CBRE, commented:
“Headline rents edged up on this quarter but remained down on 12 months ago. The generally weak environment throughout much of Europe, alongside the high demand and shortage of prime logistics supply in core locations has left growth largely stagnant. Recovery across Europe will result in an appreciable increase in rents in the main European hubs including Antwerp, Rotterdam, Paris and Frankfurt.
Moscow’s situation is unique in that the scarcity of supply is boosting rents, if this trend continues, it is expected that almost all of the one million sq m of new 2013 supply will be leased immediately. The only other comparable market situation is Istanbul.”
The availability of modern distribution centres in Tokyo remains limited, as evidenced by the further drop in the vacancy rate to 2.7% in Q2 2013 – the lowest level since 2004. Although approximately 547,500 “tsubo” (39,700 sq m or 427,000 sq ft) of new supply will come on line over the next 18 months, there is little concern of oversupply. In fact, around 60% of new space to be delivered in the second half of 2013 is already pre-committed.
Warehouse rents in Singapore ($17.13 per sq ft per annum) are supported by the relatively tight supply of good-quality stock and healthy demand by key logistics companies. Demand was also driven by growth in the transportation and storage sector as well as a resilient retail sector. Approximately 9 million sq ft of new supply is expected through the end of 2014; this should alleviate concerns about the influx of new supply and rents are expected to maintain or see some upside in the longer term.
Despite a challenging economic environment, Helsinki ($16.58 per sq ft per annum) is a newcomer to the top ten rankings, with firms yet to reduce their real estate commitments and demand still relatively strong.
Demand for high-specification warehouse space in Stockholm ($14.22 per sq ft per annum) and Moscow ($13.01 per sq ft per annum) continues to outweigh supply as it has done in many other European cities. Moscow’s vacancy rate remains extremely low at just 1.1% and the pipeline of new supply for the remainder of 2013 is significantly less than previously expected. The majority of available stock is at least 30 kilometres from Moscow, with only 10% of available stock within 10 kilometres from the city.
Hong Kong’s ($13.65 per sq ft per annum) industrial market rents increased 2.6% from last quarter. The market is nearly fully occupied, with no new supply due until 2014. Occupiers have, however; become more cost-conscious due to the weaker business environment. As a result, rents are likely to stabilise in the coming months.
