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22 October 2014
Contents
Section 1 Global ranking
Section 5 Outlook
Definitions
10
Author
Milena Kuljanin
Occupier Research
+ 1 312 424 8028
milena.kuljanin@dtz.com
Contacts
Richard Yorke
Head of Occupier Research
+44 (0)20 3296 2319
richard.yorke@dtz.com
Fergus Hicks
Global Head of Forecasting
+ 44 (0)20 3296 2307
fergus.hicks@dtz.com
Hans Vrensen
Global Head of Research
+ 44 (0)20 3296 2159
hans.vrensen@dtz.com
In this edition of our Global Logistics Landscape report, we present the costs of
occupying prime logistics space in 89 global markets - 25 more than our last
report. Furthermore, we review the cyclical and structural drivers changing the
use of logistics space globally. Finally, we provide our view about the outlook for
occupancy costs across 50 major markets.
Average European occupancy costs are currently USD 120 per sq m per year.
This is 20% higher than the US and 30% higher than Asia Pacific, confirming that
the Asian cost advantage compared to western markets endures. However,
there are low-cost opportunities in every region.
These traditional preconceptions of low-cost Asian and high-cost Western
logistics locations have been challenged by recent changes. Warehouse labour
and logistics property in Asia Pacific have become considerably more expensive,
driven by strong demand. In contrast, labour costs in Europe and the US have
increased very modestly. Combined with decreasing occupancy costs, this trend
has improved the two regions relative cost effectiveness.
A continued recovery of the world economy will encourage consumption,
manufacturing and global trade. Combined with growing E-commerce, this will
bolster demand for logistics space. E-commerce is forcing supply chains to
fragment with increased proximity to urban centres and transhipment nodes.
Consequently, logistics operators are developing increasingly sophisticated
operational forms to improve cost efficiencies and reduce delivery times.
These increased demand-side efficiencies combined with new supply are
expected to limit logistics cost growth over the next five years to below inflation
levels (Figure 1). US and Asia Pacific markets will provide challenges for
occupiers in the short term. Occupiers in Asia Pacific will face further reductions
in cost advantages, reflecting both rising occupancy and labour costs. US
occupancy cost increases are projected to surpass regional inflation.
Meanwhile, European occupiers will benefit from the lowest cost increases,
despite some cities rebounding from recent steep declines.
Figure 1
Lowest increase
Highest increase
Cost growth
Inflation
Source: DTZ Research
DTZ Research
5%
4%
3%
2%
1%
0%
Figure 2
300
London
Hong Kong
200
San Francisco
100
0
Hyderabad
Atlanta
Asia Pacific
US
Average
Milan
Global average
Highest
Europe
Lowest
Figure 3
www.dtz.com
10%
Largest decrease
Largest increase
5%
5%
2.6%
0%
0.2%
0%
-0.5% -0.2%
-5%
-5%
-10%
-10%
Cost growth
Inflation
Source: DTZ Research
Figure 4
40,000
30,000
20,000
10,000
0
Occupier Perspective
Figure 5
Asia Pacific
Europe
US
Latin America
Africa
in the
top ten most affordable list
50
100
150
200
250
300
350
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Occupier Perspective
Section 2 Fundamental
demand drivers
Cyclical and structural economic trends underpinning
regional differences in logistics demand
Logistics demand is highly correlated to GDP and
consumption. Regional GDP as well as private consumption
growth have diverged in recent years reflecting the cyclical
downturn, especially in the West, and the long term
structural changes in Asia Pacific reflecting the rotation
towards a consumer centric economy (Figure 6). Likewise,
manufacturing and transportation - key drivers of the
logistics sector - have diverged, with Asia Pacific recording
strong output growth compared to the US and Europe
where activity has been flat or worse. Emerging markets
such as India, Indonesia and Vietnam have posted
especially strong growth. The changes in occupancy costs,
discussed in Section 1, reflect these economic trends.
Figure 6
EU
US
Asia Pacific
Figure 7
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20%
10%
0%
-10%
-20%
2004-2008
2009
2010
Europe
US
2011
2012
2013
Asia Pacific
Figure 8
50%
40%
30%
20%
10%
0%
Latin
America
Asia Pacific
2011
2012
North
America
2013
Western
Europe
Global
2014 (f)
Source: eMarketer
Occupier Perspective
Containerisation is driving down shipping costs and offsetting high and unpredictable fuel costs
The ability of exporters to effectively connect with
international markets depends on the performance of the
entire supply chain in terms of cost, time, reliability and
predictability. Goods in transit are carefully factored into
supply chains, requiring transhipment hubs to operate to
very high levels of capacity and efficiency. This has
underpinned the growth in large ports able to handle the
largest container ships (see Box 2). Moreover, falling
shipping costs, thanks to the economies of scale associated
with containerisation, has offset rising door-to-door
delivery costs which have been driven upwards by high
and unpredictable fuel costs. In addition, technological
improvements have significantly increased the speed of
ships and reduced the time required to load and unload
ships. When this is taken into account, the qualityadjusted cost of ocean shipping has gone down.
Retailers shifting from retail to logistics space can realise
real estate cost savings
It is estimated that e-commerce users typically require
three times the logistics space used by traditional retailers.
However, logistics is significantly more affordable than
retail space (Figure 9). Thus, retailers who shift from instore to online sales can reduce their retail real estate
footprint by storing all products in warehouses and closing
all deals online. This enables significant property cost
savings. This is increasingly important in locations where
competitiveness for retail space as well as affordable
labour is stiff. Retailers in several Asian markets are seeing
rapidly rising wages. These are likely to continue to
increase rapidly across the region over the next few years.
Figure 9
6000%
4,000
4000%
2,000
2000%
0%
Difference (RHS)
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Occupier Perspective
Figure 10
Busan
Ningbo-Zhoushan
Qingdao
Guangzhou Harbor
Jebel Ali, Dubai
Tianjin
Rotterdam
Port Klang
Kaohsiung
Dalian
Hamburg
Asia Pacific
Antwerp
Keihin ports
EMEA
Xiamen
Los Angeles
US
Tanjung Pelepas
0
10
20
30
40
Figure 11
Largest increase
Largest decrease
20%
10%
0%
www.dtz.com
-10%
Occupier Perspective
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Figure 12
3
2
1
0
Germany
Poland
2013
UK
2014 (f)
France
2015 (f)
Czech
Republic
2016 (f)
Figure 13
Singapore
2013
2014 (f)
Hangzhou
2015 (f)
Nanjing
2016 (f)
Figure 14
0.8
0.6
0.4
0.2
0.0
Dallas
Inland
Empire
2013
Houston Chicago
2014 (f)
2015 (f)
Los
Northern
Angeles New Jersey
2016 (f)
Source: REIS
Occupier Perspective
Section 5 Outlook
Global economic recovery solid but uneven across regions
The world economy is improving and with it consumption
as well as manufacturing and transport activity. However,
economic growth is likely to be slow and uneven between
and within the regions. GDP and consumption growth will
be especially weak in Southern Europe which means the
entire region will continue to lag behind Asia Pacific and
the US (Figure 15). In the US, increased reshoring and
labour efficiency is sparking a manufacturing rebound. As a
result, productivity growth is forecast to be level with Asia
Pacific. The American South in particular is emerging as a
major manufacturing and logistics hub. Relatively low costs
and tax rates means it is becoming increasingly attractive
for logistics companies relying on low-skilled workers.
Memphis is attracting a number of manufacturing and
logistics operators. Swedish household appliances giant
Electrolux established a 70,000 sq m manufacturing facility
in the city in 2014.
Supply injections to impact costs in Europe and the US
As discussed in section 4, occupiers can expect significant
new supply across all three regions over the next years.
Modest growth in economic demand drivers in Europe and
the US means rental growth in these regions will be
particularly sensitive to new supply. New European supply
in 2014 will be 52% higher than in 2013. In the US, it will
be 64% higher (Figure 16). European occupiers will benefit
from a particularly large injection in 2016, but the US will
see a slowdown in construction activity in 2015. It should
be mentioned that this development pipeline bears a
degree of underestimation. Growing demand is likely to
spur new construction activity which will keep a lid on
rental growth.
Figure 15
Transport &
Manufacturing
Consumption
5%
4%
3%
2%
1%
0%
-1%
2009-13
2014-18
2009-13
EU
US
2014-18
2009-13
2014-18
Asia Pacific
Figure 16
4
2
0
2013
2014 (f)
Europe
2015 (f)
2016 (f)
US
www.dtz.com
Figure 17
Lowest increase
Highest increase
5%
4%
3%
2%
1%
0%
Cost growth
Inflation
Source: DTZ Research
Occupier Perspective
Figure 18
Forecast total increase in occupancy costs (USD per sq m per year) and warehouse operative salary (thousands USD),
2014-2018
20
Bucharest
Prague
Antwerp
Rome
Warsaw
Berlin
Gothenburg
Madrid
Marseille
Lyon
Budapest
Frankfurt
Perth
Greater Paris
Hamburg
Vilnius
Dallas
Boston
Brussels
Chicago
Rotterdam
Philadelphia
Barcelona
Phoenix
Los Angeles
Tallinn
Shanghai
Milan
High
Occupier
favourability
10
30
40
50
Asia Pacific
Europe
US
Wage increase,
thousands
Europe average
US average
Global average
Asia Pacific average
Low
Atlanta
Melbourne
Taipei
Copenhagen
Brisbane
Manchester
Riga
San Francisco
Oslo
San Diego
Helsinki
Amsterdam
Sydney
Denver
Houston
Birmingham
Seattle
Leeds
London
Dublin
Singapore
Hong Kong
10
20
30
40
50
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Occupier Perspective
Logistics building
A logistics building is a large-scale industrial premise in
which (a range of) logistics activities are performed,
such as storage and transhipment. The logistics building
is located in a prime industrial area with good transport
links. The building normally consists of approximately
5-10% office, a minimum gross internal floor area of
5,000 sq m and an eaves height in excess of 10 metres.
Gross Internal Area (GIA)
Gross Internal Area refers to the total floor area within
the building measured to the internal face of the
external walls. It includes areas such as internal walls,
partitions, columns, toilets, changing rooms, lift rooms,
boiler rooms and open-sided covered areas.
Prime rent
Prime rent is the highest rent that could be achieved
for a typical building/unit of the highest quality and
specification in the best location to a tenant with a
good (i.e. secure) covenant.
The prime rent is a net rent, excluding service charge
and tax. It is based on a standard lease, excluding
exceptional deals for that particular market.
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Total
Occupancy
Costs
Occupier Perspective 10
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Occupier Perspective 11
DTZ Research
DTZ Research Contacts
Global Head of Research
Hans Vrensen
Phone: +44 (0)20 3296 2159
Email: hans.vrensen@dtz.com
Head of Occupier Research
Richard Yorke
Fergus Hicks
Email: richard.yorke@dtz.com
Email: fergus.hicks@dtz.com
Magali Marton
Andrew Ness
Email: magali.marton@dtz.com
Email: andrew.ness@dtz.com
John Wickes
Dominic Brown
Email: john.wickes@dtz.com
Email: dominic.brown@dtz.com
US Tenant Representation
Steven Quick
Greg Schementi
Email: steven.quick@dtz.com
Email:greg.schementi@dtz.com
EMEA Logistics
James Maddock
Robert Hall
Email: james.maddock@dtz.com
Email: robert.a.hall@dtz.com
David Jones
Tony Su
Email: david.jones@dtz.com
Email: tony.zy.su@dtz.com
DISCLAIMER
This report should not be relied upon as a basis for entering into transactions without seeking specific,
qualified, professional advice. Whilst facts have been rigorously checked, DTZ can take no
responsibility for any damage or loss suffered as a result of any inadvertent inaccuracy within this
report. Information contained herein should not, in whole or part, be published, reproduced or
referred to without prior approval. Any such reproduction should be credited to DTZ.
DTZ October 2014
www.dtz.com
Occupier Perspective 12