The European industrial and logistics property market is on track to set new records for both take-up and investment in 2015, and the longer-term sector outlook remains positive despite geopolitical risks, according to a report from Cushman & Wakefield.
The latest Property Times European Logistics market report reveals strong demand from developed economies is offsetting the slowdown in emerging markets. Industrial production and exports are showing reasonable growth, with CEE countries expected to make the strongest gains over the next five years.
European logistics and industrial take-up reached 10.8 million square metres in the first nine months of 2015, representing a 13 per cent increase compared to the same period a year ago. German lettings accounted for more than half of letting activity, although the Volkswagen scandal could hit future demand from the automotive sector. Poland (2.8 million sq m), a priority market for e-retailers thanks to relatively low operating costs and improving infrastructures, has overtaken France to become the second most active market.
EUR14.3 billion was invested in industrial property across Europe over the same period, with almost half concentrated in the UK.
Magali Marton, Director, EMEA Research, says: “In most European countries, and especially in the UK, letting activity is dampened by a lack of supply. Demand is strong, marked by the surge of e-commerce. Retailers as well as industrial companies are completely reshaping their supply chain in favour of built-to-suit solutions in a market where there is a clear mismatch between demand and supply.”
Prime rental values are expected to enter a positive cycle in the coming years, consistent with a more confident economic environment, boosting future occupier demand. A growing imbalance between strong demand and a severe shortage of supply is putting rental values under pressure across all regions.
Rob Hall, Senior Director and Co-Chair EMEA Logistics, says: “Prime rents in Europe are expected to grow at an average rate of 1.6 per cent per annum up to 2020, over performing the growth expected in offices and retail over the same period. Dublin is forecast to improve the most, with expected annual rental growth of 5.3 per cent up to 2020. Having been resilient even during the crisis, rents should remain quite strong in the UK, especially in regional markets such as Birmingham and Leeds.”
The European industrial investment market outlook is also positive, with EUR14.3 billion invested since the beginning of the year. 2015 is set to be another record year for the European industrial market, following in the footsteps of 2014, currently the record year with EUR21.7 billion of traded assets.
While domestic players continue to dominate, accounting for 57 per cent of investment activity in 2015, this market share is steadily shrinking as international players increasingly emerge as serious contenders, especially on large lot size deals. International investors’ market share rises to 75 per cent on deals of more than EUR200 million, with Blackstone making the largest acquisition of the year when it purchased a UK logistics portfolio of EUR537 million.
Mark Webster, Partner, Logistics and Industrial, says: “The weight of capital seeking investment opportunities remains considerable, and the industrial sector is still considered a highly desirable alternative asset class. Opportunistic players are sweeping across Europe and entering a wider range of countries. A notable feature has been Asian investors also entering this market for the first time, recording several deals of more than EUR100 million in the latter part of 2015 and likely to be increasingly active in 2016.”
Source: Property Funds World