At the beginning of every year most of us make New Year resolutions and ponder what opportunities might emerge throughout the year. With economic conditions gradually improving across Europe, industrial occupiers have a reason to be optimistic about the year ahead. But a key question remains: what opportunities will there be for occupiers in 2014 amidst continued strong competition across the European markets and what risks might they face?
Currently, the overall assessment of industrial real estate market conditions points to a landlord favourable market. Competition for industrial space is increasing in many countries on the back of limited existing supply and high occupier demand. Consequently, occupier costs are likely to increase this year in select markets such as Berlin, Dusseldorf, Frankfurt, Prague, Dublin, Milan and Amsterdam where rental uplifts of more than 1% per annum are expected.
However, upon closer examination, there are clear opportunities across a number of markets. Occupiers can find relatively abundant choice in Spain and CEE countries where current supply levels remain significantly above the average take-up over the last few years. Similarly, while incentives have started to fall in many markets, occupiers will still be able to negotiate favourable incentives in 2014 in those markets where choice remains high.
Those occupiers still driven by cost reduction can, of course, consider secondary units. The downside here is that some of these facilities are not suited to satisfy today’s modern requirements. In addition, secondary buildings are often unsustainable and can be more expensive to run and maintain over the longer-term.
A further opportunity is owner-occupier construction. This is a viable alternative to leasehold particularly where land values and construction costs are low. Some of the lowest land values in Europe can be found in Ireland, France and a number of CEE countries.
In terms of market diversification, industrial occupiers are increasingly focussing on the Middle East and parts of Africa. Some of these countries are expected to grow at a higher rate than mainstream Europe in 2014 and offer end users competitive labour costs and a relatively well-developed infrastructure. Occupier interest is also stimulated by large-scale developments currently under construction – the most notable being the large industrial and economic cities in Saudi Arabia.
2014 will bring select new opportunities to occupiers. However, with conditions varying by geography, occupiers will need to do their homework carefully. And that’s a resolution that only a few will be able to make.