Two-tier industrial and logistics market emerges across Europe

Demand patterns for industrial and logistics property are increasingly being driven by the need for occupiers to cut operating costs and increase building efficiencies, according to a new market report by CB Richard Ellis. Against a backdrop of weakening demand for their products and services, occupiers are rationalising their use of space, seeking to restructure leases, sub-let excess space or upgrade to better premises that will enhance overall business operating efficiency.

With the main economic indicators that are relevant to the industrial property market - including capital investment and consumer spending - expected to turn negative in 2009, cost reduction strategies are high on the agenda for many occupiers. For manufacturers, this stems from the need to address excess capacity and weak price trends for many products, while distributors are increasingly looking for efficiency gains across the supply chain. This trend is resulting in generally slower leasing activity and reduced demand for industrial and logistics property, but is also driving demand and competition for the best quality space.

The quality and flexibility of buildings are also key influences on corporate costs and efficiency. CBRE's latest Industrial and Logistics MarketView report found that well-located properties with the greatest potential for flexibility and adaptability are enticing occupiers and pushing demand for efficient buildings. Many companies, even in mature markets, still operate from outdated premises, further fuelling requirements for more efficient industrial and logistics space, even in an environment where demand is generally slowing.

Guy Frampton, Head of EMEA Industrial and Logistics, CB Richard Ellis, said: 'Occupiers of industrial and logistics space are looking for flexible, adaptable buildings which will help to drive efficiencies and reduce operating costs. A two-tier market has emerged in some European markets as rents begin to rise for tailor-made facilities, despite an overall rental rate downturn on existing buildings last year.

'Certain sectors of the market are still very active, such as food, household consumer products and data/file storage, and these are requirements which are better suited to purpose-built facilities.' added Frampton.