Before I started to write the latest Industrial Occupier Conditions Report, I thought that opportunities for industrial occupiers were limited. Relatively strong demand in combination with reducing choice is driving occupiers towards costly built-to-suit solutions with less flexible lease terms. However, after a closer examination of market conditions on a country-by-country basis, I spotted various opportunities in a number of markets.
Occupier Choice uneven across Europe
Occupiers able and/or willing to re-locate or expand their operations should consider CEE and MEA markets as they generally offer more choice and softer cost profiles compared with Western Europe for both leasehold and freehold solutions. While supply continues to fall in most CEE countries due to limited speculative development, occupier requirements are still relatively easy to fulfil in certain markets such as Hungary and Poland. As a result, prime rents, which are already at low levels, are expected to fall in Budapest and Warsaw this year. Meanwhile, occupiers who would consider buying land and constructing their own facilities, can find competitive land values and construction costs in Croatia, Romania, Serbia and Ukraine. New opportunities keep arising in MEA markets due to improving infrastructure and competitive labour costs. In fact, the latest Logistics Performance Index compiled by the World Bank – which takes into account infrastructure development and connectivity – puts Morocco and South Africa ahead of some of the CEE countries.
Even so, windows of opportunity also exist in Western Europe, in particular for those occupiers who are less dependent on state-of-the-art modern requirements and are, therefore, able to occupy second-hand units. These occupiers benefit from shorter leases, significantly lower rents and higher incentives. For example, occupiers can negotiate around four month rent free a year for a standard lease length in France, and around two months in Spain and the UK. In addition, occupiers looking to buy land can find very competitive prices in select Western European markets such as France and Ireland.
Overall, opportunities do exist for occupiers but they are uneven across markets. Occupiers, able to rent industrial space or buy land, should consider both leasehold and freehold solutions in their decision-making process.