How to find the best value warehouse space

Based upon analysis of industrial real estate at 54 markets in 21 countries, taxes and service factored in on average account about 19% of property costs. The world largest cities are usually faced with high property costs, as high demand from consumers and businesses are often met with constrained land supply. London, Tokyo, Hongkong and Singapore are four markets that stand above the rest. In London, the highest combined warehousing property costs globally (rent + service charges + taxes are usually totalling up to $32 per sq ft. Soaring take-up from ecommerce business and higher levels of stockpiling saw vacancy rates fall to 3.49% in London and the South East in 2020, the lowest level since 2016.

Tokyo tops the league for rents alone, at $25 per sq ft. Here, vacancy rates stand at just 0.4%, and rental growth was close to 7% in Greater Tokyo in the year to September 2020.

In land-constrained world cities, warehousing competes with other use property classes including data centres, another sector which has seen massive pandemic boost. Prime sites are being intensified with multistorey buildings in response. In Tokyo, ESR’s six-storey Amagasaki Distribution Centre completed in June last year. At 390,000 sq m it is the largest logistics building in Asia-Pacific. Other high-cost markets for warehousing property are Sydney (5th), New York (6th), Dubai (7th), Beijing (8th) and Los Angeles (9th).

The lowest warehousing property costs can be found in India, at between $3 and $4 per sq ft. Due to a lower e-commerce penetration rates (just 5%) and a less developed manufacturing sector, India has yet to see the same development as other markets, yet its potential is vast.

“India’s population is forecast to rise to 1.5 billion by 2030, by which point it will have overtaken China to become the world’s most populous,” says Arvind Nandan, Managing Director of Research and Consulting, Savills India. “Urbanisation is bringing hundreds of millions more people to cities, with associated new infrastructure investment supporting the development of logistics hubs.”

Property costs do not tell the whole story. Labour costs are typically the single largest component of a warehousing operation, usually making up more than half of all operational costs. Based on our studies of markets, they average $11 per employee per hour across the markets. Electricity and diesel costs, for the running of buildings and vehicle fleets, are also a major factor in warehousing operations. We have combined these three costs to show total warehousing operation costs by location (warehouse labour costs per hour, electricity prices per kilowatt hour and diesel prices per litre). A higher weighting is given to labour costs as the primary cost component for occupiers.

Very low labour costs coupled with extremely low energy costs make operations in Vietnam the cheapest location of our 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.