The latest logistics and industrial investment data from Jones Lang LaSalle indicates that European markets continue to record substantial investor interest. Following a slow start to the year, volumes made up ground in Q2 2012 when €2.2 billion were invested in logistics and industrial assets, reflecting a 56% increase quarter-on-quarter. Nevertheless, half year volumes were still down 20% on the equivalent period last year (H1 2011).
“Although the European logistics and industrial market has continued to face headwinds from the re-emergence of Eurozone market strains, there is still strong investor interest in core, income producing investment opportunities in the major markets. This is reflected in volumes being up 45% on H1 2008 during the first six months of this year” notes Chris Staveley, Director of European Logistics and Industrial Capital Markets at Jones Lang LaSalle.
The share of Europe’s two leading markets increased to 65% in H1 2012 compared with just over 50% in 2011 as a whole. Both markets saw increased investment activity in the first six months 2012 compared with H1 2011 – volumes were up by 4% in the UK and a strong 63% in Germany. Elsewhere in Europe, half year 2012 volumes rose in France (+14%), Poland (+43%) and Russia (+40%) compared to H1 2011. They weakened across all other markets.
“Investors continued to express interest in the Benelux, the Nordics and the main CEE markets, but a lack of core, stabilised product in these markets has been the main reason for subdued activity throughout the first six months of 2012. On the other hand, caution continuous to prevail for Southern European markets” comments Chris Staveley.
International investors continued to express strong appetite for European logistics and industrial assets. International capital targeting this asset class exceeded €1 billion in the first half of 2012, making the second strongest investor group behind UK investors. The majority of international capital was invested in the UK (60% of the total international capital) and Germany (20%), reflecting the groups preference for core product in prime locations.
“While there was broad stability in prime yields for many markets over the quarter, increasing selectivity by cautious investors has led to a stronger polarisation of markets by mid-2012. Instead of a drift in one direction, both upward and downward changes were in evidence on a year-on-year basis” comments Alexandra Tornow, Head of EMEA Logistics and Industrial Research at Jones Lang LaSalle.
The Jones Lang LaSalle weighted net initial European prime logistics yield index moved out 10bps to 7.50% in Q2 2012, following four consecutive quarters with no change. Germany continued to deliver the gold medal with on-going yield compression reflected across all major logistics markets in the second quarter, down between 10-15bps. This was countered by softening yield levels in Glasgow (+25bps), Milan (+15bps), Moscow (+25bps), Paris (+20bps) and Stockholm (+25bps).
Overall softening yield levels in combination with declining rents has led to a marginal contraction in annualized capital value growth in Q2 2012 albeit this is not seen as a general trend with stability in most markets expected during the remainder of the year. “On a positive note, looking towards the second half of the year, sentiment suggests that there is the potential for increased activity as investors continue to move away from equities towards fixed income assets” Alexandra Tornow notes.