• The twin aims of flexibility and future-proofing are paramount
• There is growing awareness of the need for agility in executing portfolio strategies, including tailoring occupational terms to specific situations
• Occupiers’ aspirations towards customer service and landlord relations are also rising, with many looking for increased innovation from landlords
• With the scope to source good buildings from built stock expected to remain limited, new approaches to development are gaining prominence particularly in emerging markets
• Sustainability remains high on the agenda, and is seen as a form of operational risk management, a means of value enhancement and a buffer against future legislation

·         Most of the key indicators in the industrial and logistics sector have remained broadly stable despite a deteriorating economic environment

·         Prime rents in the sector are flat, leaving the CBRE EU-15 industrial rent index around 7.5% lower than at its mid-2008 peak.  Similarly, prime yields have barely changed overall since the beginning of this year

·         Occupiers in a number of markets are taking advantage of a period of rental weakness to upgrade from outdated space to more modern warehouse buildings

·         Investment activity rose in the first half of this year, with Germany and CEE posting increased shares of investment turnover

•Occupiers reviewing their real estate strategies more actively, often as part of a wider reorganisation of supply chains and distribution networks
•Rents generally stable in core markets; still downward pressure in some peripheral areas
•Increased investment appetite pushing prime yields down in most markets.How far will investment appetite spread into value-add segment ?

• The occupational market for modern logistics buildings is undergoing marked changes that will have profound implications for investors, developers and lenders
• A key change is the growing need for real estate to deliver performance benefits to the business and the associated need for greater building flexibility
• These changes are heightening the need for transparent pricing metrics that capture the full-life occupation costs of different buildings
• As a result, landlords will need to be constantly adaptable and responsive to changing occupier requirements
• This process could well evolve into new models for sharing the rewards and risks of development, ownership and occupation, each of which will clearly need careful scrutiny

 While downward yield movements and investment turnover growth have been relatively modest in the European logistics market over the past year, longer-term changes in the sector’s investment characteristics have established a different, and lower, yield regime over the past ten years than was observed previously.At local market level, varying degrees of yield movement since the market peaked in 2007 have shaped the relationship between current prime yields and historic averages. This relationship is also influenced by differences in levels of market liquidity and investor base, aswell as demand-side issues linked to national economic structures and outlooks. This analysis shows that it is not always self-evident that the pattern of prime logistics yields fully reflects these differences. This suggests that the market offers out performance opportunities for informed pan-European investors.In addition to micro-locational and asset-specific issues, an understanding of these trends will be important in informing investors’ markets election decision.

Faced with recessionary conditions in most geographies, occupiers of industrial and logistics buildings have had to take steps to reduce their cost base. This doesn’t automatically skew demand towards cheaper space, mainly because the quality gradient is unacceptably steep. More often the issue is how to acquire modern, flexible large-volume space on acceptable terms, either by altering existing leases or securing new ones that are sufficiently short and occupier-friendly. This increased desire for flexibility is mainly the result of shorter business planning horizons, creating the need to be able to review or reverse strategic decisions more quickly. Even where an investor/developer is prepared to grant a short lease there is usually a cost in the form of a higher initial rent. Assessing how much space-flexibility is needed, and how much to pay for it, is difficult butessential. Sustainability remains a live agenda, but weak economic conditions have produced a more discriminating approach to the issue, and a sharper focus on those building features than can be shown to generate cost savings.

•Investment market starting to accelerate, with focus on prime assets and the UK
•Occupiers still concerned to reduce costs, but growing need for flexibility steering them towards the best buildings
•Nature of demand changing, as 3PLs increasingly favour campus-style developments
•Shortages of prime investment stock may force buyers to widen their search criteria