Total costs (including labour and energy costs, in addition to rents, taxes and service charges) make London, Stockholm and Tokyo the top three most expensive locations in the world in which to take warehouse space, according to new research from Savills, with Gothenburg and Hamburg taking fourth and fifth place.
If considering property costs alone (rents, taxes and service charges) London, Tokyo, Hong Kong, Singapore and Sydney are the top five most expensive locations in Savills warehouse costs ranking, but once the other costs warehouse occupiers face are factored in, many European cities leapfrog other Asia Pacific destinations. This is significant, says Savills, given many European countries are currently behind the UK and Asia Pac in terms of ecommerce penetration, although adoption is rapidly accelerating due to Covid-19, and therefore competition for good value, quality warehouse space is only going to heighten in the coming years.
Savills analysed warehousing property costs in 54 markets across 21 countries as part of its Impacts research programme. On average taxes and service charges account for 19% of total property costs. Labour costs are typically the single largest component of a warehousing operation, usually making up more than half of all operational costs, at an average of US$11 per employee per hour, while electricity and diesel costs for the running of buildings and vehicle fleets, are also a major factor in warehousing operations.
Marcus de Minckwitz, director, Savills Regional Investment Advisory EMEA, comments: “Pressure on costs is only going one way: the booming ecommerce sector is driving demand in a majority of markets, although this may be offset slightly by some bricks and mortar retailers scaling back operations. While occupiers’ options may be limited – after all you can’t service last mile deliveries in London from a warehouse in Rome, just because the latter’s costs are lower – the analysis does show the relative costs of warehouses between countries if you are looking to take space for a major regional distribution centre from which to service several markets, and indicate the competition you may face in these locations. Record take-up of space across Europe in 2020, for instance, has driven down vacancy rates to just 5% across the continent, with further falls anticipated.”
Paul Tostevin, director in Savills World Research team, adds: “Increasingly, cost alone will also not be the only driver of location strategy. The shift to low carbon technologies means that the need for high capacity power supplies has increased. Long term strategies will include ever greater emphasis on the ESG agenda. Online retailers are leading the way in reducing their carbon footprints, and are demanding warehouses that meet tough environmental criteria, leaving older assets that don’t at risk of a ‘brown discount’. This is likely to further pivot occupier demand to high quality Grade A space, with rents increasing to match the higher quality stock on offer.”
Very low labour costs coupled with extremely low energy costs make operations in Vietnam the cheapest location of Savills sample, led by Hanoi. These low costs make Vietnam highly attractive to multinationals setting up operations in the country, but the government is actively targeting higher value companies. India, also characterised by very low warehousing property costs, is the second cheapest location examined by Savills.