Total costs for prime warehouse space grew 10.1% in the 12 months ended June 2023, a new report finds, up from the 8% increase between 2021 and 2022.
Savills World Research’s annual analysis of 52 markets found in terms of total costs comprising rents, service charges and taxes, London remains the most expensive warehouse market, with prime space costing £33 (US$42) per square foot. Sydney leapfrogged into second position at £21.61 per square foot, displacing Hong Kong to fourth at £20.63 and Los Angeles is in third place at £21.21, or $27, per square foot.
The real estate firm points out that these locations typically have solid fundamentals including land constraints and low vacancy rates, even if vacancies are no longer at their historic lows.
Savills said the pace of property cost increases has slowed with the first half of this year seeing an increase of 4.4% in total costs, compared with a 5.4% rise in the second half of 2022. Warehouse rental growth has continued to outstrip inflation, with prime rents having risen by 11.8% in a year. Savills attributes this to factors including on- or near-shoring,e-commerce growth and requirements from manufacturing-related occupiers.
Paul Tostevin, director in Savills World Research, said in a statement that higher costs are here to stay.
"Nonetheless, even in the currently cheapest locations, in the long term, population growth and structural trends are likely to fuel demand for goods and services, and in turn warehouse requirements; this applied not only to developing economies, but in the growth hotspots of developed ones. That only increases occupier emphasis on the best located, most efficient warehousing space, underpinning demand for prime warehouses and in turn future rental growth.”
Savills said that in addition to warehousing property costs, occupiers also need to consider expenses for workers, which have risen by 7.4% in the 12 months to June 2023 across the 52 markets, and the electricity and diesel costs associated with operating buildings and large fleets of vehicles. Diesel costs are falling, but electricity costs continue to rise.