Logistics & Industrial Asset Optimisation

ADDRESSING THE COST CONUNDRUM

It is against this backdrop of structural change, that cyclical pressures have become more acute.

LOGISTICS & INDUSTRIAL ASSET OPTIMISATION FOR TOMORROW

Financial discipline has always been important to businesses, especially in low margin environments, but during the previous financial cycle, undertaking capital works was financially easier. As capitalisation rates continued to compress, capital expenditure programmes could be more readily written off against the increasing value of the asset. Asset owners are now facing a reverse paradigm, where assets are becoming increasingly expensive to operate as well as potentially requiring significant capital works at a time when debt is expensive and asset values are falling. The only mitigating factor being that rents continue to increase, which is helping to partially offset this decline in value. In this context, it may be tempting to do nothing, or at least put off capital expenditure programmes until they are considered essential. Often this

timing has revolved around a major tenant lease event. However, planning works in this way is reactive, rather than proactive, and runs the risk of doing too little too late to ensure the ongoing operational and financial value of the asset. A forward-looking schedule of capital improvements can be used to demonstrate commitment to keep an asset relevant to the tenant or the wider market. This does not always involve large-scale works, but can be smaller-scale projects such smart metering, rejuvenation of green spaces, upgrading truck rest-stop locations or improving lighting to increase security.

INPUT COSTS

RUNNING COSTS

ASSET VALUE

• L&I

• OPERATIONAL EXPENDITURE HAS RISEN 10 20%. • PRIME RENTS IN

• COST OF DEBT HAS RISEN 350 400BPS • CAPITAL EXPENDITURE HAS RISEN 20 25%

CAPITALISATION RATES IN MAJOR MARKETS HAVE SOFTENED BY 126BPS ON AVERAGE SINCE Q1 2022

CUSHMAN & WAKEFIELD

EUROPE HAVE RISEN BY 37% ON AVERAGE OVER THE LAST 5 YEARS

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