According to report author Elaine Rossall, associate director ofCushman's London office, over the past two years demand fordistribution space has remained buoyant across all markets. As aconsequence of improved economic growth, performance has beenpositive, with consistently high demand, particularly for largerfacilities used by retailers and logistics and 3PL firms. Thesesame users have led to an increasing focus on the highest qualityspace in locations with the greatest accessibility. Additionally,says the author, shorter lease terms have become an establishedfeature of the market. This is particularly true in Western Europewhere contract logistics is more established, but she calls thetrend increasingly pan-European.

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But Rossall says the general economic slowdown is having animpact. Though she does not expect the requirement for top-qualityspace to diminish, clients looking to cut costs will be searchingout less expensive locations as long as infrastructure is suitablefor logistics operations. At the same time, she cautions, asustained reduction in consumption or drop in disposable incomewould inevitably have a negative impact on the distribution sector,leading to moreconsolidations and acquisitions. Rising oil costsare also likely to have an increasing impact, leading to greateruse of inland waterways and rail and more concern with findingcentral locations.

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"As we enter a very different and more challenging economicenvironment, the emphasis will be focused even more on costefficiencies and defining the right location for largedistributionwarehouses," says Cushman partner Steven Watt, head ofthe firm's pan-European logistics and industrial practice. "Anumber of issues are being brought to bear which could challengethe established patterns of distribution hubs across theregion."

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The report says Belgium, the Netherlands, France and Germanyremain the focus of pan-European distribution, but CEE markets arerapidly gaining in logistical importance as the economies of theregion improves. While domestic consumer consumption is stilldriving CEE demand, growth of the region's manufacturing base isalso playing a role. However, transport networks continue to be ofpoor quality compared to Western Europe, and infrastructureimprovement is crucial for future growth. According to Cushman, theBaltic States, Russia and Turkey offer significant albeit riskyinvestment potential in terms of both domestic opportunities andeventual connectivity to Asia and the Middle East.

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"With consumer demand slowing in Western Europe whilemaintaining apace in Central and Eastern Europe, there arequestions being raised as to whether the traditional Europeandistribution center (EDC) heartland of Holland, Belgium andnorthern France may come under threat," Watt observes. "Supplychain pressures may force companies to close or downsizetheirWestern European EDCs and relocate to the Czech Republic,Poland or even further east."

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In Watt's opinion, the mantra for forward-looking real estatedecisions looking should be "strategic location, location,location," which he says means a more holistic analysis relative totransport and labor costs. "It will be fascinating to see how thecentral and southeasternEuropean economies stand up to the currentchallenges," he states, adding that the locations to watch in thenear future are Turkey and Romania, the former because of its largeconsumer population and the growth of large retail businesses, andthe latter due to its size and perceived strategic factors."Ukraine is also attracting more interest," he continues, "andalong with Russia, whilst not for the faint hearted, is all aboutcorrectly pricing the risk and big prizes on offer for the firstentrants."

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