Europe's Industrial and Logistics Property Market Holds Stable Amidst Broader Downturn
Despite the economic uncertainty, the European industrial and logistics market is showing signs of relative stability compared with other real estate sectors. Robust activity in Central and Eastern Europe (CEE) and Germany, in particular, has contributed to the strength of the overall industrial picture, according to a new market report by CB Richard Ellis.
While overall European investment activity dropped sharply in the first half of 2008, industrial investment was more stable, totalling €6.6bn and accounting for 10% of total European turnover. Excluding the UK, industrial investment activity in the first half was only 3% lower than the same period in 2007, whilst overall European investment turnover in the first half totalled €66.5bn, a 46% reduction on H1 2007. Over half (54%) of all European industrial investment comprised cross-border acquisitions, compared to less than 40% in 2006, suggesting that the sector’s more international nature is an ongoing and longer-term trend.
The geographic spread of industrial investment activity across Europe has also shifted. The historically dominant economies such as the UK and France are not making as large a contribution to the total investment pool. At 29% of total industrial investment, Germany represented the single largest component of first half activity, up from 12% for 2007 as a whole. By contrast, the UK comprised only 20% of the market in H1 2008, compared with over a third last year, and France also reported a decline.
Industrial rents in Europe are maintaining a degree of stability compared to other real estate sectors. The EU-15 industrial prime rent index fell by 1.0% in the third quarter of 2008, the second successive quarterly reduction; although the year-on-year growth rate remains positive at 0.4%. The EU-10 industrial rent index, covering Central and Eastern Europe, remained stable in the third quarter, up 7.3% year-on-year. Reflecting the trend seen across other European property sectors, industrial yields rose further in the third quarter with the EU-15 industrial yield index up by over 20 basis points to 7.1%.
Many CEE markets have seen increased occupier activity as the supply of modern logistics space expands and where a combination of rising construction costs and strong demand is pushing up rents. In the Czech Republic, total market take-up in the first half of the year was up by 83% from the corresponding period last year. Many of these countries are also seeing the evolution of more mature market structures as third party logistics operators extend their networks into new markets. In Poland, for instance, demand is increasingly dispersed around the country and over 50% of modern logistics stock is now located outside the Warsaw area. Occupier demand in well-established markets such as France and the Netherlands has weakened in the first half of the year due to a range of factors, including a shortage of available quality stock.
Richard Holberton, Head of EMEA Industrial Research at CB Richard Ellis, commented: “Recent and longer-term indicators reflect the relative stability of the European industrial market from both an occupational and investment standpoint. The sector’s defensive attributes – relatively high income return and low requirement for rental growth – are increasingly attractive in a lower-growth environment, and investment levels so far this year show the sector’s increasing attraction to investors across a broad range of markets.”
He continued: “With cross-border transactions in the first half of 2008 accounting for more than half of all industrial investment activity for the first time, it is also evident that investment in this sector is also becoming more and more international.”