18. März 2010 
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European logistics investment €6.2bn in 2009, 26% down on previous year
Direct investment in European industrial markets totalled €6.2billion in 2009, reflecting an annual decline of 26% but less than the 38% fall across all asset classes. Investment volumes in the second half of 2009 (H2) increased by 60% compared with the first half of the year and were just 5% below those recorded in H2 according to Jones Lang LaSalle’s soon to be released European Industrial Markets Spring 2010 report.
As a result of attractive yield levels and favourable exchange rates, the UK remained the strongest investment market totalling €2.6billion which was more than 40% of the total European industrial investment volumes recorded in 2009, and a 7.5% increase on the previous year. The second strongest market was the Netherlands which totalled €755 million, a 10% decline year on year. France saw the largest growth in investor activity in 2009 (€595 million) - a 40% increase year-on-year.
Chris Staveley, Director, EMEA Capital Markets at Jones Lang LaSalle, said: “Yields have stabilised across Europe and in core prime markets started to compress in the second half of 2009; with the UK in particular seeing a significant compression of yields over the last few months of the year. The European industrial real estate investment market now appears to be beyond the bottom of its cycle.”
The main investor focus will continue to be well-let, prime assets in the more established Western European markets - the UK, France, Germany and the Netherlands. Yield compression, in the short term, albeit by a limited amount, is likely to continue in 2010.
“Investor demand will remain strong in 2010 for prime industrial product across core European markets. However, the recent strong yield compression and a desire for diversification may encourage some investors to divert capital away from the UK to other Continental Western and Central European markets,” Chris Staveley added.
Total occupier take-up in the main European warehousing markets totalled 10.1million sq m in 2009, reflecting an annual decline of 27%. Although occupier demand begin to improve in the second half of the year, overall take-up volumes remained significantly below the three-year average. Spain, Belgium and the UK saw the lowest levels of take-up in 2009, while Hungary (-4%), Italy (-5%) and Germany (-8%) were less affected. The only market to record an increase in take-up in 2009 was Russia, driven by the ongoing maturing process of its distribution sector.
Across Europe, the volume of new completions continued to decline during H2 2009, down 19% on the fist six months of the year. New completions reached 6.4milion sq m in 2009, reflecting a 40% decline year-on-year. Equally, the future supply pipeline has continued to contract, with approximately 2.2million sq m under construction at the beginning of 2010; 50% less than 12 months ago.
Despite declining development activity, vacancy levels increased in nearly all markets in 2009; largely due to occupier requirements being driven by a demand for modern stock whilst the majority of vacant space is concentrated in older second hand buildings. As such, Jones Lang LaSalle forecasts that occupiers, particularly in the core Western European logistics markets, will see a reduced choice of modern supply from mid-2010 and, with speculative development rare and many developers struggling to finance pre-let schemes, some occupiers will be forced into owner-occupier schemes, a trend which started to develop last year.
Alexandra Tornow, head of European Industrial Research at Jones Lang LaSalle, added: “Looking ahead, occupier demand will struggle to expand in 2010, but we forecast that reduced supply will drive falling vacancy rates in large modern units across Europe. Nevertheless, rental growth remains under a general downward pressure and incentive levels will take time to reduce as occupier decisions continue to be primarily driven by cost.”
As a result of attractive yield levels and favourable exchange rates, the UK remained the strongest investment market totalling €2.6billion which was more than 40% of the total European industrial investment volumes recorded in 2009, and a 7.5% increase on the previous year. The second strongest market was the Netherlands which totalled €755 million, a 10% decline year on year. France saw the largest growth in investor activity in 2009 (€595 million) - a 40% increase year-on-year.
Chris Staveley, Director, EMEA Capital Markets at Jones Lang LaSalle, said: “Yields have stabilised across Europe and in core prime markets started to compress in the second half of 2009; with the UK in particular seeing a significant compression of yields over the last few months of the year. The European industrial real estate investment market now appears to be beyond the bottom of its cycle.”
The main investor focus will continue to be well-let, prime assets in the more established Western European markets - the UK, France, Germany and the Netherlands. Yield compression, in the short term, albeit by a limited amount, is likely to continue in 2010.
“Investor demand will remain strong in 2010 for prime industrial product across core European markets. However, the recent strong yield compression and a desire for diversification may encourage some investors to divert capital away from the UK to other Continental Western and Central European markets,” Chris Staveley added.
Total occupier take-up in the main European warehousing markets totalled 10.1million sq m in 2009, reflecting an annual decline of 27%. Although occupier demand begin to improve in the second half of the year, overall take-up volumes remained significantly below the three-year average. Spain, Belgium and the UK saw the lowest levels of take-up in 2009, while Hungary (-4%), Italy (-5%) and Germany (-8%) were less affected. The only market to record an increase in take-up in 2009 was Russia, driven by the ongoing maturing process of its distribution sector.
Across Europe, the volume of new completions continued to decline during H2 2009, down 19% on the fist six months of the year. New completions reached 6.4milion sq m in 2009, reflecting a 40% decline year-on-year. Equally, the future supply pipeline has continued to contract, with approximately 2.2million sq m under construction at the beginning of 2010; 50% less than 12 months ago.
Despite declining development activity, vacancy levels increased in nearly all markets in 2009; largely due to occupier requirements being driven by a demand for modern stock whilst the majority of vacant space is concentrated in older second hand buildings. As such, Jones Lang LaSalle forecasts that occupiers, particularly in the core Western European logistics markets, will see a reduced choice of modern supply from mid-2010 and, with speculative development rare and many developers struggling to finance pre-let schemes, some occupiers will be forced into owner-occupier schemes, a trend which started to develop last year.
Alexandra Tornow, head of European Industrial Research at Jones Lang LaSalle, added: “Looking ahead, occupier demand will struggle to expand in 2010, but we forecast that reduced supply will drive falling vacancy rates in large modern units across Europe. Nevertheless, rental growth remains under a general downward pressure and incentive levels will take time to reduce as occupier decisions continue to be primarily driven by cost.”
