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MIPIM, Cannes & London

European Industrial Real Estate Investment Volumes Up 28% to Euro 8 billion in 2010 according to Jones Lang LaSalle research

UK, Germany and Norway were the three largest investment markets


MIPIM, Cannes and London, 9th March 2011 - Improved market fundamentals and heightened investor confidence meant that European industrial real estate investment volumes in 2010 reached Euro 8 billion; a 28% increase compared to the previous year. As anticipated transaction activity slowed over the second half of the year (H2 2010).  Investment volumes were 13% lower in H2 2010 compared with the first half of the year, largely due to the limited pool of available prime assets. This resulted in increased competition amongst investors and ongoing yield compression, a trend which is anticipated to continue this year, according to Jones Lang LaSalle’s European Industrial Markets Spring 2011 research report out today.

The UK remained the largest European industrial investment market last year, recording 35% of the total volume, although in euro terms volumes only rose moderately over the year (+8%) and, in local currency, actually declined 9%.  Investors focussed predominantly on the major Western European markets with Germany, accounting for 14% of the total volume, the strongest country outside of the UK and the only market beside the UK to top the billion mark last year. Norway's fourfold growth was the strongest in the region, propelling it ahead of Sweden for the first time in ten years and into the top three markets in Europe.
 
Chris Staveley, Director Jones Lang LaSalle's EMEA Capital Markets team, said: “Investor activity in 2010 was, to a certain degree, subdued by the lack of available prime industrial assets, which meant that whilst improved market fundamentals supported strong investor appetite and led to ongoing yield compression across Europe, overall growth in industrial investment volumes was lower than the 45% increase recorded across all direct European commercial real estate investment.”

Yields continued to compress across Europe in H2 2010, although, in comparison with H2 2009 and H1 2010, compression slowed over the last six months of the year.  Jones Lang LaSalle’s European net initial prime warehousing yield in H2 2010 moved in by 20bps compared to the previous half year and stood at 7.50% which is in line with the 10-year average.

The strongest yield compression in H2 2010 was once again recorded in Russia, where yields hardened 75bps in Moscow from Q2 2010 and 300bps from Q4 2009 to 11.5%.  Russia remains a highly volatile market and, due to limited transactional evidence, the high yield correction remains still largely untested. Significant compression was also recorded in Stockholm in H2 2010, where prime yields hardened 50bps over compared with H1 2010 and 100bps over the last 12 months to 6.75%. In Paris, yields moved in 30bps from Q2 2010 and 90bps from Q4 2009 to 7%. Yield compression over the second half of 2010 in other markets ranged mostly between 10-25bps.
 
Occupier activity in 2010 at a 10-year high
2010 European occupier take-up for large distribution warehousing units totalled 14.6 million sq m last year, 30% higher than 2009 and its highest level since Jones Lang LaSalle began compiling its data series in 2000.  Occupier activity was mainly driven by strategic considerations and the revival of demand which had been previously put on hold due to the global financial crisis; the leasing market subsequently was dominated by relocation with net absorption remaining at a low level.  More positively, space expansion increased during the latter part of 2010 driven by developments in the retail sector and general growth in Central Eastern European markets.

Almost every market recorded increasing volumes of take-up in 2010, led by the UK (+124%), Russia (+102%), Czech Republic (+46%), Poland (+34%), Germany (+32%) and Spain (+31%). With the exception of Poland and Spain, all these markets saw their highest take-up volumes since 2000. Annual growth remained more moderate in the Netherlands (+10%), Italy (+8%) and Hungary (+5%), while France (-8%) and Belgium (-43%) were the only markets which saw take up fall.

Speculative development activity remained curtailed by ongoing difficulties in obtaining finance, and those few developers who could build with equity are still wary of the letting risk. Completion volumes did however continue to rise in H2 2010, up 30% on the previous half year, driven by mounting build-to-suit transaction activity.  Even so, completion volumes recorded a five-year low in 2010 with new deliveries of around 4.9 million sq m for the full year, 24% less than in 2009.

Chris Staveley, Director of Jones Lang LaSalle’s EMEA Capital Markets team, added; “Although development starts are still dominated by non-speculative floorspace, which we expect to continue for the next few years, shrinking modern supply combined with increasingly available finance should encourage the return of the first selective speculative schemes during 2011.”

Alexandra Tornow, Head of EMEA Industrial & Logistics Research at Jones Lang LaSalle, concluded: “With much of demand held back during the global financial crisis now satisfied, inventory restocking coming to a likely end, a marginal slowing of global growth, and tightening lease conditions for modern stock, we are not forecasting a rise in occupier activity in 2011. Some moderate expansions apart, most occupier demand will be driven by lease events as well as ongoing network optimisation. Occupiers are starting to struggle to find good quality modern units; in some of the most sought after Western European markets such units became noticeably scarce by the end of last year.”
 
Notes to Editors:
In this report, Jones Lang LaSalle looks at the drivers and future trends influencing the European distribution warehousing real estate market. This includes warehouses for storage, distribution centres, cross-docking warehouses, sorting and cleaning centres and cold storage warehouses.

Our occupational market data covers the 11 main European logistics markets: Belgium, Czech Republic, France, Germany, Hungary, Italy, Netherlands, Poland, Russia (take-up: Moscow only), Spain and the UK. Analysis is based on units > 5,000 m² for Continental Europe and > 10,000 m² for the UK.

Our investment market analysis is based on the whole European region and includes transactions >EUR 3.5 million (US $5million).