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Strong final quarter pushes total volumes to €8.6 billion in 2012, exceeding expectations according to Jones Lang LaSalle research
London, 5 Feb 2013 – Investment in European logistics and industrial assets rose to €2.9 billion in the final quarter of 2012, reflecting a 41% increase on the previous quarter according to Jones Lang LaSalle research. Surging investment activity lifted the year’s total to €8.6 billion. This still reflects a 13% decline on 2011 but the overall slowdown remained below a previously expected 20%+ drop, thus exceeding expectations for the full-year 2012.
“The strong final quarter reflected the increasing investor appetite we witnessed throughout 2012 in the sector. The overall slowdown in transaction activity during 2012 was driven largely by an uneven spread in liquidity across the region, with falls across much of Southern Europe but strong growth in sought after core markets such as France, Germany and Poland.” comments Tom Waite, Associate Director European Capital Markets in Jones Lang LaSalle.
“We clearly see upside potential in 2013, driven in particular by further large portfolio and platform and deals. We also expect continued demand for strong income producing opportunities, with new market dynamics such as e-tailing and the structural shift in distribution networks leading to greater potential for new stock” he concludes.
The strong final quarter was attributed to accelerating activity outside the ‘Top 3’ markets (the UK, France and Germany) where high investor interest seen over the previous quarters finally translated into deal activity. Volumes rose significantly in the Netherlands (+67%), Norway (five-fold), Poland (twelve-fold) and Sweden (six-fold). However, full-year volumes were still behind 2011 in Norway (-77%) and the Netherlands (-35%) whilst growth in Sweden was a marginal 2%.
Activity also picked up again in the UK in Q4 2012. €920 million was invested, reflecting a 41% increase on Q3, to lift full-year volumes in the market to €3.1 billion. Whilst this was still 23% behind 2001 the UK remained the most liquid market and last year recorded the second highest volume traded since 2007, signalling it continues to strongly appeal to investors.
Despite the strong finish to the year, challenging debt market conditions and a lack of core product continued to put some constraint on the market. Only four markets outperformed in terms of year-on-year growth: Poland (four-fold to €0.5 billion), Germany (+44% to €1.6 billion), France (+38% to €1.3 billion) and Russia (+14% to €260 million). Increasing annual investment activity in the first three markets was mainly driven by large portfolio transactions, accounting for 26% of the total in France, 30% in Germany almost 80% in Poland.
Cross-border flows remained a significant feature albeit marginally slowing from 65% in 2011 to just below 60% in 2012 as a whole. Cross-border buyers continued to seek mostly core, low-risk income yielding assets and therefore, mainly invested in the UK, France and Germany. Poland saw a slightly lower volume of foreign purchases but is now clearly joining the three historic core markets in the perception of investors.
The prospect of higher domestic capital gain taxes imposed by the US government certainly contributed to a significantly rising activity from US investors in the final quarter. Investment in European logistics and industrial assets reached a record €810 million in Q4 and for the first time since the start of the series pushed full-year volumes to the €1.3 billion mark.
The European prime logistics yield stabilized in Q4 2012 at 7.50% with movements over the quarter limited to Budapest and Madrid, up 25bps respectively. Continued yield compression on an annual basis was seen in the ‘Big 5’ German hubs only (with yields hardening 10bps in Düsseldorf and 15bps respectively in the remaining hubs). Nevertheless, the weighted average European yield moved out by 10bps over the year. This outward movement was caused by continued high investor caution and risk-averseness leading to softening levels in a number of markets throughout the last 12 months: Budapest (+25bps), Glasgow (+25bps), Leeds (+50bps), Madrid (+50bps), Milan (+15bps), Moscow (+50bps), Paris (+20bps) and Stockholm (+25bps).
“Logistics capital values remained robust across the core markets in 2012 with on-going growth reported in Germany. However they have come under pressure in the southern periphery as rental levels declined and yields continued to move out. We expect any capital growth in 2013 to be mainly driven by increasing rental levels, although continued strong investor appetite could lead to some yield compression in selected sub-markets over the year, particularly in the core Western European hubs” comments Alexandra Tornow, Associate Director, EMEA Logistics and Industrial Research at Jones Lang LaSalle.
“Pressure will remain in the markets most affected by the Eurozone crisis, with some further price adjustment likely. On the flipside, capital values in these markets are still between 20-50% below the last market peak. Over the next 12 months this will lead to increasing activity from equity strong investors in particular in markets such as Italy and Spain” she adds.
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