Better than Anticipated Global Growth in Industrial Rents

Tightening Supply Pipeline Leads to Better than Anticipated Global Growth in Industrial Rents

Tokyo the world’s most expensive market according to CB Richard Ellis report

Sydney, NSW – June 16, 2011 – A lack of suitable and available industrial properties is driving up industrial rents and spurring the return of speculative development in many prime markets according to a new report from CB Richard Ellis Group, Inc. (CBRE).

CBRE’s latest global analysis of the industrial logistics sector shows that expansion strategies and retailer demand helping to underpin industrial rental growth to some extent, particularly in the Asian markets, as is world trade growth which is back to pre-crisis levels.

However, the MarketView report highlights that the main driver of growth has been the lack of suitable, high specification properties in most regions and this is expected to continue to drive global prime rents upwards throughout 2011.

According to CBRE’s Global Industrial Rent Index, rental growth has been better than anticipated, with the Index rising 1.3% over the March quarter – the largest quarterly growth since Q2 2007. In the year to Q1 2011, rents grew by 2.1%.

CBRE Global Chief Economist Ray Torto commented; “A constrained industrial supply pipeline and a move by occupiers to achieve cost savings and redistribute warehousing costs to 3PLs are the key trends which will continue to drive occupier demand and future rental growth. World trade flows have also rebounded and this will be a positive for logistics demand over the medium term.”

However, Dr. Torto noted that the industrial sector – like all sectors of the commercial real estate market – was undergoing a gradual and somewhat fragile recovery which would be influenced by a number varying factors, some of which were global and some of which were regional specific.

“Improving trade movements and economic growth in most economies will benefit the global industrial sector, however as consumer confidence continues to waver and unemployment levels remain high in some markets, the rate of recovery in the sector will continue to be fragile,” Dr. Torto said.

“Other macro risks such as political instability in some countries and the resulted effect on crude oil prices in the short to medium term are equally critical for the global logistics sector. A rise of 19.5% in crude oil prices in Q1 alone has significant implications on the cost base of logistic occupiers and could impact on location decisions going forward.”

CBRE’s analysis covers 55 of the leading industrial and logistics markets across the world. It shows that, as of Q1 2011, Tokyo continues to be the most expensive industrial market for distribution/logistics centres with an average rental of US$22.15/sq ft.

Despite contracting slightly since Q4, 2010, London continues to hold second position (US$20.04/sq ft), while Singapore at (US$14.04/sq ft) has surpassed Sao Paulo, Brazil (US$12.88/sq ft) as the third most expensive location.

The report shows that Asia Pacific markets have led the global rental recovery, with the region recording 9.0% rental growth in the year to Q1 2011. Although currency movements have impacted the rankings table, six of the top 10 most expensive global industrial markets are in the Asia Pacific region with Tokyo and Singapore followed in the rankings by Sydney in 7th position and Perth, Brisbane and Hong Kong at 8th, 9th and 10th position respectively.

An improving rental market and growing occupier demand has also translated to increasing investor interest, particularly in the Americas and in the EMEA industrial sector. This has led to an 11 basis point contraction in CBRE’s Global Industrial Yield Index

Mr. Joshua Charles, Regional Director, Industrial, Logistics & Investments - Australia & New Zealand commented: “Investment demand continues to focus on the developed regions amid signs of further rental growth. A lack of product on the market has also contributed to the tightening investment market and there is an expectation that higher investment levels could occur this year as a growing number of companies consider the strategic disposal of assets in order to secure finance for new development projects.”

Mr. Charles added; “We are already seeing this trend occur in a number of markets, such as Canada and Australia, with the disposal of a number of significant industrial portfolios.”

Commenting on the Pacific market, Mr. Charles said rental growth had begun to occur across most markets. The expansion of logistics operators and retailers was the main driver of demand and this had also resulted in the continuing growth of 3PLs.

“The consolidation of operations to efficient, central facilities was particularly evident in China and the Pacific region, where costs savings and efficiencies are still important drivers of occupier activity.”

Melbourne has shown the strongest rental growth in the Pacific, with a 1.8% rental rise in Q1 and a 6.6% rise year-on-year. Melbourne was followed by Brisbane, Adelaide and Sydney in showing positive rental growth year-on-year, with Auckland, Wellington and Canberra bringing up the rear with negative growth during the period.

“The consolidation of distribution operations has been particularly evident in Melbourne’s West sub-region where affordable land, attractive rents and excellent transport links to the Port have attracted development and cost conscious occupiers,” Mr. Charles said.

The largest leasing deal to complete in the Asia Pacific region in Q1 was the pre-lease of close to 70,000 square metres of space in Truganina, Melbourne to national retailer Coles.

CB Richard Ellis Global Industrial Rental Locations, US$ psf, Q1 2011

MARKETS | COUNTRY/STATE | REGION | CURRENCY | 2011 Q1 LOCAL MARKET MEASUREMENT | 2011 Q1 US $ PSF EQUIVALENT | CURRENT RANKING | PREVIOUS POSITION
Tokyo | Japan | Asia | JPY | 154.02 | 22.15 | 1 | 1
London | UK | EMEA | UK | 14.15 | 20.04 | 2 | 2
Singapore | Singapore | Asia | USD $ | 14.04 | 14.04 | 3 | 4
Sao Paulo/Campinas | Brazil | Latin America | USD $ | 12.88 | 12.88 | 4 | 3
Paris | France | EMEA | Euro | 8.36 | 11.84 | 5 | 6
Amsterdam (Schiphol) | Netherlands | EMEA | Euro | 8.35 | 11.83 | 6 | 5
Sydney | Australia | Pacific | AUD $ | 113.27 | 10.87 | 7 | 7
Perth | Australia | Pacific | AUD $ | 109.85 | 10.54 | 8 | 9
Brisbane | Australia | Pacific | AUD $ | 109.67 | 10.52 | 9 | 10
Hong Kong | China | Asia | USD $ | 9.93 | 9.93 | 10 | 11

About CB Richard Ellis
CB Richard Ellis Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services firm (in terms of 2010 revenue). The Company has approximately 31,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 300 offices (excluding affiliates) worldwide. CB Richard Ellis offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our Web site at www.cbre.com.

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