The growing digitisation of retail and realignment of logistics networks to support omni-channel fulfilment and bespoke final mile delivery is continuing to drive robust activity in occupational markets. Following a strong 2016, demand for space in the U.S. continued to push down the national vacancy rate to a new record low. The European average vacancy rate also continued to edge lower on rising occupier activity, with the majority of regional markets anticipated to record rental increases in 2017. In Asia Pacific, third-party logistics and e-commerce firms boosted demand.
Source: JLL, February 2017
Following a strong 2016, demand for space in the U.S. industrial market is not expected to slow any time soon. Despite a wave of new development projects in many cities, major markets like Chicago, Atlanta and Dallas alone contributed nearly one-third of total new deliveries, helping to push the national vacancy rate to a new record low of 5.6% at year-end. A further 18 million square metres still in the construction pipeline is likely to put upward pressure on rental rates and provide tenants with new supply options in 2017.
In Canada the national vacancy rate recorded a sixth consecutive quarterly drop during Q4 2016, declining another 20 basis points to reach a mere 2.7%. Meanwhile, Mexico City headed to a record year in 2016 as surging demand prompted the vacancy rate to fall to a low 2.2%. Conditions are projected to remain favourable for industrial landlords and developers, although the market will be closely tuned to developments in U.S. trade and related exchange rate movements.
The European occupational warehouse market maintained its upward trajectory in 2016, driven by robust activity across most markets but, in particular, strongly rising demand in Germany and the UK. Over the next 12 months we expect to see further strong demand for warehouses exceeding 50,000 square metres as well as for smaller units close to large cities, fuelled by the growing digitisation of retail and continuing alignment to omni-channel fulfilment and bespoke final-mile delivery.
Development activity in 2016 reached a new peak in the current cycle, although the majority of new supply remained focused on build-to-suit. This helped push the European aggregate vacancy rate to below 6% at the end of 2016 and we do not foresee any meaningful increase in vacancy levels in 2017. Looking ahead, we forecast rising upward pressure on rents, with the majority of European markets anticipated to register rental increases in 2017. However, growth will be contained in most markets, with the highest potential likely in major markets in Belgium, Ireland, Italy, Spain and Sweden.
Third-party logistics (3PL) firms servicing the e-commerce market continued to drive demand in Asia Pacific’s logistics market in Q4. They were particularly active in Beijing, while take-up in Shanghai was boosted by 3PLs’ demand for non-bonded space. Occupier take-up was also robust in Australia in 4Q; in a change to the prevailing trend, 60% of take-up was of existing stock (mostly in Sydney and Melbourne).
In aggregate, rents were down slightly from the previous quarter in the region. Only two markets showed growth in spot rates, with rents edging up in Shanghai, while growth in Hong Kong was largely driven by supply-constrained cargo lift-access facilities. Prime grade rents were generally flat across Australia with pockets of growth in Sydney.
Published February 2017
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