European Industrial Markets: On the move again
In this report, we look at the drivers and future trends influencing the European distribution warehousing real estate market. In the second half of 2009 industrial yield levels stabilised across Europe and started to compress in core prime markets. Investors will continue to seek well-let prime opportunities with yield compression likely to continue in 2010, albeit by a limited amount.
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European Industrial Capital Markets Overview
The second half of 2009 saw accelerating investment activity as investor confidence improved from its historic lows at the beginning of 2009. Nevertheless, 2010 is anticipated to be a challenging year for investors as concerns persist regarding occupier demand and further rental declines. Furthermore, many investors and banks will still be working through legacy issues, and refinancing remains a major concern. However, the early upside of the investment market cycle has in the past proven to be one of the most profitable times in the cycle to invest, although it has its risks as well.
The European industrial real estate investment market now appears to be close to, if not beyond, the bottom of its cycle. Yields have stabilised across Europe and some markets already saw some compression. The UK in particular has seen a significant rebound in yields over the last few months of 2009.
European Logistics Occupier Markets Overview
Occupier activity showing signs of improvement. Most European markets showed considerable decreases in occupier demand in 2009. Total take-up in the main European warehousing markets2 amounted to 10.1 million sq m, reflecting an annual decline of 27%. Low occupier demand was halted by improving activity in H2 2009, with take-up growing 16% on H1 2009. Nevertheless, growth was recorded on low volumes and remained significantly below the three-year average. Spain, Belgium and the UK saw weak take-up in 2009, while Hungary (-4%), Italy (-5%) and Germany (-8%) were less affected. The only market recording increasing take-up volumes in 2009 was Russia, driven by the ongoing necessary maturing process of its distribution sector.
Throughout 2009, occupiers preferred infrastructure-strong locations in markets offering a mature distribution sector. Activity was thus concentrated in the core Western European markets, with Germany, France and the Netherlands accounting for 50% of total take-up.