With the return of economic growth across most of Europe, industrial occupier markets will stage a modest recovery this year. Investment markets should also deliver improved performance, despite the fragility of occupier markets.
King Sturge warns that investor demand will stay focused on prime assets; but with a scarcity of suitable stock investors are already showing signs of compromising on lease length or covenant, if not on location. Secondary properties look set for another difficult year.
The investment tap is on, but only just
Appetite for industrial product entering 2010 has begun to improve, especially for larger logistics facilities and portfolios. However, there remains a lack of available good quality product coming to the market.
“This can also be recognized in Hungary, where one of the few investment transactions in 2009 was the sale of the Tesco Logistics Centers in Hungary, bought by WP Carey” - adds Ward Stocker of King Sturge Hungary who advised WP Carey on the acquisition.
King Sturge predicts that pent up demand and a continuing lack of adequate product, could drive prime yields lower in the first half of 2010 in a number of European markets, although occupational markets will remain precarious.
2010: a difficult year for the occupier
Demand in 2010 is likely to come from the sectors and occupiers that proved the most resilient in 2009 even though last year demand was skewed towards smaller unit sizes. The food industry, the discount retailing sector and logistics providers are some of the most active occupiers.
In addition demand for space to service internet shopping will continue to be another growth area across Europe, as consumers seek out the convenience and cost advantages of e-retailing.
A moving decade ahead for freight
The low point for air and sea freight volumes has now been passed but it will take some years to return to normal levels. There is port capacity on track to be delivered in the next 5-10 years (in Rotterdam, Hamburg, London) that will certainly be required as the decade proceeds, in order to service the growing consumer base of an enlarging European Union. In addition many airports are expanding, particularly in the CEE.
Both trends will influence freight flows and therefore the potential locations of warehouse facilities.
“In relation to Hungary it is important to note that with Hochtief now being responsible for the development and running of Budapest Airport, there is likely to be a growth within the cargo industry especially with business coming from Asia. Budapest Airport has already been looking to increase their freight capacity and this could also lead to not only line one airside logistics, but also line two and three airside logistics. Hungary needs to try and compete as an air cargo logistics hub, this makes sense in light of the central location of Hungary within Europe and the excellent infrastructure, especially in terms of road connections” - states Ward Stocker who is a Partner in the King Sturge Investment/Development Team. (BBJ Online)