The uneven recovery, combined with more responsive supply chains, will limit the costs of occupying prime logistics space across 89 markets worldwide, according to DTZ Research’s 2014 Global Occupancy Costs - Logistics report. The report projects that global occupancy costs will increase at a modest average annual rate of 1.9% to the end of 2018, below the global inflation rate.
The report states that occupier demand will grow steadily, supported by strengthening global trade, e-commerce, consumption and manufacturing activity. However, occupiers in Asia Pacific will continue to face the highest occupancy cost increases, according to Richard Yorke, global head of occupier research for DTZ.
“Cyclical and structural changes to the world economy are changing global cost competitiveness,” he said. “We forecast an average annual uplift of 2.4% to 2018. Hong Kong and Singapore will post the biggest challenge in terms of cost growth, exceeding 3% per annum. Meanwhile, occupiers in Europe will benefit from the lowest cost increases. Landlords in the U.S. are starting to get the upper-hand as demand for warehouse space grows. This will translate into cost increases which will surpass the U.S. inflation level.”
The report’s findings also reveal that logistics operators in Asia Pacific, specifically China and India, have access to the most affordable warehouse labor. However, Asia Pacific has seen the highest increases in labor costs since 2009, reflected by an average annual growth rate of 11%, compared to 1.4% in Europe and 1.9% in the U.S.
“Our analysis of logistics labor costs reveals that wages for warehouse operatives have increased significantly in Asia Pacific and China in particular,” said Milena Kuljanin, author of the report. “In Shenzhen for instance, warehouse operative wages have increased by more than 15% per annum since 2009. This reflects an imbalance between the demand and supply of labor and also indicates a shift in the economics of global logistics. Future increases in wages and occupancy costs will further reduce China’s cost advantage. While some companies have reshored operations to U.S. and Europe, others are seeking out more affordable inland provinces and neighboring countries such as Vietnam and Indonesia.”
Asia Pacific remains the most affordable market globally. Six of the top ten least expensive markets globally are China and India. However, more established hubs including Hong Kong and Singapore place in the top ten least affordable list. Similarly, there are large intra-regional differences in Europe where high costs in the UK and the Nordics are contrasted by lower costs in Belgium and Central and Eastern Europe. Cost differences in the U.S. are less apparent than in the other regions. But, there is a clear division between the most affordable Southern American markets such as Memphis, Atlanta and New Orleans and the West Coast markets of San Francisco, Los Angeles and Seattle.
Tony Su, Head of Asia Pacific Logistics at DTZ, comments: “This report provides compelling evidence for the need for logistics occupiers to evolve new operational forms which are responsive to global cyclical and structural forces. Logistics users must find a balance between centralized locations that consolidate inventories and distribution models that reduce delivery times by being within or adjacent to major population centers. The availability and cost of labor, especially in Asia Pacific where costs are growing, will impact decisions about where occupiers locate.”