Prime Warehouse Costs Surge Globally, Sydney Overtakes Hong Kong in Savills Report

Prime Warehouse Costs Surge Globally, Sydney Overtakes Hong Kong in Savills Report

(IN BRIEF) Total costs for prime warehousing space, including rents, service charges, and taxes, have increased by 10.1% over the 12 months leading up to June 2023, surpassing the 8% annual increase recorded between 2021 and 2022, according to Savills World Research. London remains the most expensive location for warehouses at $42 per sq ft, with Sydney ranking second at $27.50 per sq ft, followed by Los Angeles at $27 per sq ft. The report indicates that factors such as land constraints, low vacancy rates, on-shoring, ecommerce growth, and demand from manufacturing-related occupiers are driving rental growth in these prime locations.

(PRESS RELEASE) LONDON, 22-Aug-2023 — /EuropaWire/ — Savills World Research’s annual analysis of 52 markets has found that London remains the most expensive warehouse in the warehousing market, with prime space costing US$42 per sq ft (rent, service charges and taxes combined), but that Sydney has leapfrogged into second position (US $27.50/sqft) displacing Hong Kong to fourth (US $26/sqft). Los Angeles, meanwhile, remains third (US $27/sqft). The international real estate advisor says that these locations are typically characterised by solid fundamentals including land constraints and low vacancy rates, even if in some of these geographies vacancies are no longer at their historic lows, which is maintaining rental growth.

In an update to its 2023 Impacts programme, Savills says the pace of property costs increases has slowed with H1 2023 seeing an increase of 4.4% in total costs, compared to a 5.4% rise in H2 2022. Warehouse rental growth has continued to outstrip inflation; prime rents alone have risen by 11.8% in a year as a combination of factors including on- or near-shoring, further ecommerce growth and requirements from manufacturing-related occupiers continue to increase demand for the best located, most efficient warehousing space.

Paul Tostevin, director in Savills World Research, comments: “While the rate of warehouse property cost increases may be decelerating, 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 says that in addition to warehousing property costs, occupiers also need to consider labour costs (usually a higher percentage of their total expenditure) which have risen by 7.4% in the 12 months to June 2023 across the 52 markets examined, and the electricity and diesel costs associated with operating buildings and large fleets of vehicle.  Diesel costs are falling, but electricity costs continue to rise – again emphasizing the importance of prime space that may be more energy efficient or even have their own power generation on site.

Media Contact:

Paul Tostevin
Director, Head of Department, World Research
+44 (0) 20 7016 3883

SOURCE: Savills