High fuel costs hit logistics property market

Rising fuel prices is affecting property demand from transport and storage industry

A prolonged period of high fuel costs is creating a tougher operating environment for many industrial property occupiers, leading to reduced demand and ultimately downward pressure on rents.

Market experts at Jones Lang LaSalle warn any company that is involved in the transport of goods is having its profit margins squeezed as fuel prices rise.

"We expect to see some short term pull back in new enquiry for industrial space as occupiers in the transport and storage industry seek real estate cost savings and efficiencies," says Jeff Pond, Regional Director of Industrial Services.

Nick Crothers, National Industrial Analyst at Jones Lang LaSalle, says research shows the changes in transport and storage sector profits had a strong relationship with take-up of industrial space.

"When oil prices rise and profits fall there is a diminished propensity to expand space requirements," he says.

"As the transport and storage industry has driven the lion’s share of take-up since 2000, we expect to see reduced demand from this industry, resulting in downward pressure on rents in markets with a high supply pipeline.

"In the longer term, the cost of fuel may contribute to an acceleration of the program already underway to shift a greater proportion of freight via rail. As such, a priority for the industry is the identification and development of intermodal terminal sites in major cities."

Transport and logistics companies focusing on reducing costs, reducing travel times and increasing operational efficiencies will continue to seek out markets that offer them lower real estate costs as a proportion of their operating costs, according to the industrial property firm.

Pond says there are a number of real estate solutions for transport and logistics companies in a rising cost environment.

"Firstly, companies may opt to relocate to markets that offer them lower rents or land costs," he says.

"Secondly, relocating to a market or property that can deliver an increase in operational efficiencies and additional cost savings should be considered.

"Thirdly, businesses should consider reducing the property held directly on their balance sheets in order to maximise their investment in their core operations."

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