Pictured above: Simon Lloyd

The UK will offer good value to logistics occupiers until 2012, despite higher occupancy costs compared to other parts of Europe, according to a new report from DTZ Research. The first ever DTZ Occupier Perspective: European Occupancy Costs - Logistics 2010, reveals that UK occupiers will benefit from subdued growth in current occupancy costs until at least 2012, combined with relatively low labour costs when compared to other high-cost European markets.

The report, presenting a forecast (2010-2014) for logistics occupancy costs, reveals that London Heathrow has one of the highest occupancy costs in Europe at €215 per sq m per annum costs closely followed by South East England at €126 per sq m per annum. This is compared to the European average at the end of September 2010 of €86.3 per sq m per annum. The higher costs in the UK are the result of high rents and high real estate taxes. In contrast, logistics companies benefit from lower costs in France, Belgium and Central Eastern Europe markets predominantly due to lower rental rates. 

Simon Lloyd, DTZ's Head of Industrial and Logistics, comments: "Our research highlights a disparity in logistics occupancy costs across Europe, with the UK presenting one of the highest cost locations. The significance of Heathrow - the busiest international airport, and the South East offering unparalleled access to markets worldwide, is reflected in the higher occupancy costs. Both London and the South East are also large markets in their own right as well as internationally. However, occupiers across the UK are still able to benefit from a slow rate of growth in occupancy costs during the next three years - particularly subdued until 2012.  In addition, our report also highlights the good value offered by the UK in respect of lower labour costs when compared to other high-cost European markets. The UK also benefits from greater flexibility of labour compared to other European hubs. This is a further consideration for logistics occupiers seeking to obtain maximum value from European locations.

"In the Birmingham market, rents are close to the European average but UK locations have increased total occupancy costs because of high property taxation. Furthermore, fuel duty will increase costs for all UK operations. On the other hand, labour costs and flexibility remain highly competitive."

During the past 12 months, occupier activity in the logistics sector has improved with some demand returning, particularly for modern flexible distribution space. The economic outlook for logistics is relatively positive, with growth in transport and communications expected to outperform GDP over the report forecast period (2010-2014). 

Lloyd added: "The rise in occupancy costs, in core markets such as the UK will be gradual as rents in these markets tend to grow slowly due to the relative ease of supplying new space to absorb new demand. Occupiers will be able to take advantage of this period of weak growth to find good value opportunities."