International
King Sturge Global Industrial and Office Rents Survey: Dublin industrial property 2nd highest in world; Office rents in Dublin among the global top 10
By Finfacts Team
Mar 17, 2006, 17:11

In some parts of Europe prime industrial rents rose according to the latest King Sturge Global Industrial and Office Rents Survey

Global industrial costs rose by 1.8% on average per city over the six months to December 2005, says international property consultant King Sturge in its Global Industrial and Office Rents Survey. London Heathrow remains the most expensive location covered in the survey, while six of the top ten European locations are in the UK. Dublin is the second most expensive location for total occupation costs*.

Occupational costs of West End offices 2.5 x that of Paris

According to the King Sturge Global Industrial and Office Rents Survey recently published

Occupying prime office space in London’s West End is now 2½ times as expensive as its nearest European counterpart, Paris, says international property consultant King Sturge in its Global Industrial and Office Rents Survey. Five of the top ten most expensive European locations are in the UK, namely London’s West End and City, Birmingham, Edinburgh and Manchester. The other European cities to make the top ten included Paris, Moscow, Zurich, Geneva and Dublin.

European office occupation costs dipped by -0.9% on average per city in the second half of 2005. However, the UK bucked the European trend with all nine markets surveyed increasing 0.7% on average. Strongest growth was seen in London’s West End, where prime office occupation costs rose to £110.50 ft² p.a. (including local taxes and service charges). The strength of London’s West End market and low vacancy rates could lead to prime West End occupation costs breaking the glass ceiling of £125 ft² p.a. during 2006.

Author of the report, Catherine Hayes, said: “With London’s West End office market vacancy rate at only 4.9%, below the 20-year average of 5.6%, there will continue to be upwards pressure on prime and average rents in London’s West End, especially in the ‘best of the rest’ buildings”.

Industrial property still a strong bet for 2006

Investment in industrial property is still very attractive says King Sturge in its latest report “European Industrial Property Markets 2006”

Industrial property remains an attractive investment for 2006, says King Sturge in its latest report European Industrial Property Markets 2006, as there continues to be the prospect of high income returns relative to other sectors, combined with further yield compression. Local hotspots in Spain, Central Europe and parts of the UK are bucking the overall trend of modest growth across Europe in the industrial property market. Over €100 billion was spent on property last year across the European Union, of which we estimate €8 billion was on industrial warehouse facilities, both by owner-occupiers and developers/investors.

As ever, changing economies are dictating demand for industrial property. Strong economic growth in Spain, Northern France and Central Europe has generated high demand for distribution warehousing, as imports replace domestically produced goods and key distribution hubs are established. With vacancy rates declining to 5.5% in Western Europe and 7% in Central Europe, developers are responding with speculative construction in the Midlands and north of England, south of France, regions of Spain and in Poland.

Angus McIntosh, Head of Research at King Sturge, commented “there is a desperate lack of distribution warehousing space in Central Europe. Construction levels are high as many goods are now assembled there, to be shipped back to Western Europe. Poland is becoming very popular, strategically, because it’s proximity to Russia makes it an ideal hub for goods being transported to and from Russia and Western Europe.”

Prime industrial rents averaged across Western Europe rose slightly, by 1.7%, in 2005. Sharper hikes in rents were witnessed in Spain, parts of the UK and France, with Barcelona, Madrid and Edinburgh all experiencing increases of 10% or more. Rents are expected to remain stable in Western Europe, but could come under further downward pressure in Central Europe.

The highest rents for industrial property are in London (€199 per m² pa), Geneva (€130 per m² pa) and Dublin (€123 per m² pa), while the lowest prime rents are found in Antwerp (€38 per m² pa), Warsaw (€40 per m² pa) and Bordeaux (€40 per m² pa). Industrial land values are now highest in Spain, Germany and England and lowest in Central Europe, France and Belgium.

Prime industrial property in Western Europe provides an investment yield of between 5.5% and 7.5% in core markets. This compares with euro short-term money rates of 2.5% and euro long-term money rates of 3.3% (as at January 2006). In Central Europe, investment yields are even higher, at 8% to 9%, making the “risk premium”, the differential between industrial property yields and euro long-term money rates, even greater.

Angus McIntosh comments: “Investment in industrial property is still very attractive when compared with other sectors, particularly in emerging markets like Russia. The main challenge for would-be investors is that there isn’t enough product to go round at the appropriate price. Nevertheless, the target markets remain Central Europe, Spain and parts of the UK. Germany also offers recovery opportunities for the astute investor.”

*Occupation costs include local taxes and service charges.

Download Global Industrial and Office Rents Survey and the  European Industrial Property Markets 2006 reports from here