DEMAND FOR INDUSTRIAL PROPERTY IN THE EUROPEAN MARKET OVER THE NEXT DECADE - COMPARING THE UK and GERMANY

In the early 1980s there was a sea change in the attitude of the UK government towards manufacturing industry. Subsidies were withdrawn, interest rates were allowed to rise to rates consistent with the inflationary environment and rigid labour laws were dismantled to allow greater flexibility in the hiring and firing of staff. From a property perspective the result was a rapid reduction in the volume of industrial floorspace in occupation and a substantial decline in real industrial returns. Traditional manufacturing regions were the worse hit and, in some cases, have yet to recover. This economic shock also accelerated some long-term changes: tenure of industrial property changed rapidly from predominantly owner-occupied to leasehold; specialist warehousing became the growth segment of the industrial property market and much functionally obsolete industrial property saw a change of use. In Germany, despite some reform, labour laws remain relatively inflexible, some manufacturing industry continues to attract subsidy and industry in Germany is becoming progressively less competitive. As far as industrial real estate in Germany is concerned, owner occupation remains the dominant form of occupation and logistics property provides the engine that drives the market. In the 1980ís it was competition from the ìtigerî economies of Korea and Taiwan that defined the industrial trading environment. This decade will see even more vigorous competition from China, India and, closer to home, the central European economies. This paper looks at the next decade comparing industrial property markets in the UK and Germany using different scenarios to assess the potential impact of these factors on future markets in these countries for occupiers and investors in industrial property.