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FALLING INDUSTRIAL RENTS REFLECT GLOBAL SLUMP IN DEMAND FOR GOODS

• London's Heathrow is the world’s most expensive location followed by Tokyo and Hong Kong
• Asia Pacific sees biggest rental falls; South America is the most resilient region

Commercial rents on industrial property fell by an average of 5.5% in 2009 following an unprecedented fall in consumer demand for goods during the global recession. This global measure of economic performance in Cushman & Wakefield’s Industrial Space Across the World report, shows that all regions of the world suffered compressed rents for the first time in the report’s 15 year history.

Industrial rents are a key indicator of economic performance and inextricably linked to demand for manufacturing and industrial production and consumer demand for goods. Although 2009 saw a marked fall, there were signs that values were stabilising toward the end of the year. Cushman & Wakefield expects 2010 to see some rent increases toward year end, the extent of which will be driven by the speed in recovery of global export activity.

In the ranking of the 49 most expensive global locations, London Heathrow remained the most expensive with an occupancy cost of €200 sq m per year, around one third more expensive than second placed Tokyo at €152 sq m per year. Hong Kong was in third position €146 sq m per year.

The world’s most expensive industrial locations 2010
Rank		Location	Country	Occupancy Cost
2009	2010			€ / sq.m. / year	USD / sq.ft. / year
1	1	London Heathrow	UK	200,28	26,67
2	2	Tokyo	Japan	151,73	20,03
9	3	Hongkong	China	145,89	19,41
4	4	Genewa	Switzerland	139,15	18,35
8	5	Oslo	Norway	135,00	17,96
6	6	Helsinki	Finland	132,00	17,56
3	7	Dublin	Ireland	129,00	17,17
11	8	Paris	France	115,00	15,31
12	9	Stockholm	Sweden	107,80	14,37
14	10	Sydney	Australia	92,83	12,36

There were a small number of locations globally that managed to record rental growth, mainly because of a lack of supply of prime space available to lease or the resilience of logistics space which has been less affected by the downturn. Two Indian locations, Gurgaon in New Delhi and Chakan in Pune, recorded the biggest increases at 16.7% and 15.4% respectively.

The world’s best performing industrial locations 2009
Rank 2010	Location	Country	Rental Growth
1	New Delhi – Gurgaon	India	16,7%
2	Pune – Chakan	India	15,4%
3	Rio de Janeiro	Brazil	10,3%
4	Calabarzon	Philippines	8,3%
5	Oslo	Norway	8,0%
6	Ottawa	Canada	7,3%
7	Petaling Jaya	Malaysia	5,9%
8	Warsaw	Poland	5,0%
9	Montreal	Canada	4,3%
10	Sao Paulo	Brazil	3,7%

Industrial rental performance in the European market was polarised between Western Europe which recorded only a 3% fall through the year and Central and Eastern Europe which saw a fall of over 12%. The Baltic nations of Latvia, Lithuania and Estonia all saw rents tumble by over 30%, with large manufacturing locations such as Russia and Ukraine seeing falls of 21% and 22% respectively. Ireland suffered the biggest fall in Western Europe with a 20% decrease.

Rents in South America were the most resilient in the world and fell by just 0.1% with key locations in Sao Paulo and Rio de Janeiro in Brazil actually showing rental growth. The two cities are now the second and third most expensive in the Americas. Ottawa, Canada is now the most expensive location in the Americas at €91 sq m per year, an increase of 7%. It replaces the San Francisco Peninsula, USA where rents fell 8% relegating it to fifth position.

Asia Pacific recorded the largest regional decline with rents down overall by 6.4%. Australia and Singapore had the biggest rental falls at 17% and 16% respectively. Tokyo remains the most expensive location in the region despite rents moving down by 13% over the year. The principal drivers of the region, India and China, both saw rents fall by 8% over the year as a result of lower export demand and a reduction in manufacturing output. Conversely, Indonesia, Malaysia and the Philippines all recorded rises in rents of 3%, 6% and 8% due to a shortage of prime buildings.

Barrie David, senior research analyst, Cushman & Wakefield, said: “An upturn in exports and rise in production kick started demand across many locations in late 2009 and over the coming months the pace of activity should pick up still further. The outlook is certainly more upbeat for 2010 and a sustained recovery in global rents should shadow a similar recovery in the global economy generally by year end.”

John Siu, general manager Hong Kong and Southern China, Cushman & Wakefield, said: “The rental increase for industrial/warehouse premises in Hong Kong over the last six to 12 months was mainly driven by the strong demand for quality warehouse premises from end users and third party logistics providers resulting from the gradual recovery of the economy and the increase of import and export volumes. We are now receiving an increasing number of inquires from overseas warehouse users who are interested in setting up new distribution centres in Hong Kong for their Asia Pacific markets. In addition, there is a strong demand from tenants in the banking and IT sectors who need to build their data centre facilities in quality industrial/warehouse buildings. We feel that rents for industrial/warehouse buildings in Hong Kong will increase by 10 to 15% in the next 12 to 18 months. The Interlink, a brand new 2.4 million square feet modern warehouse building due for completion in early 2012 will probably meet the increasing demand in the market.”

Jim Dieter, executive vice president of Cushman & Wakefield's U.S. industrial services group, said: “The success of industrial markets, regardless if they are located in Central and Eastern Europe, Asia or in the Americas, are all interconnected and most always rely on consumer demand. Whether it's the railroads which deliver freight or the seaports which receive products from around the world, the ultimate key to positive absorption and rent growth is and will always be jobs and consumer demand.”

Tomasz Mika, senior negotiator of Industrial Department of Cushman & Wakefield in Poland, said, “Sharp decline in demand and high vacancy rate in 2009 pushed the rents down in most regions in Poland, including Central Poland and Silesia. Despite lower demand, small supply of modern warehouse space in urban locations, mainly Warsaw, resulted in a slight increase in lease costs, which caused the city to move up the ranking of the world’s most expensive industrial locations. Rental rates are expected to stabilise in 2010, with new space supply on an upward trend.”