“The logistics market is not expected to perform as well as last year given the deterioration of the European economic climate,” notes the European Logistics Group* of BNP Paribas Real Estate in its Q2 2012 European logistics market survey, which was launched today (9/10/12). Weakened demand in most European countries signals a slowdown in the second half of 2012.
Low demand holding back new developments is impacting market growth
In Germany the logistics market had reached historical highs in 2011. Down in Q2 2012, the German market still points to a very good year. It remained the largest occupier market for warehouses over 5.000 m² in Europe, with nearly 1.9 million taken up during H1 2012. Hamburg and Frankfurt are the largest logistics markets in Germany. In the absence of very large deals, most markets were stimulated by demand for smaller mid-range size categories below 20.000 m².
In France, take-up reached 773.000 m² in H1 2012. The market increased slightly compared to the same period last year, but take-up is not expected to reach the outstanding volume recorded in 2011, as economic and market conditions have altered significantly. Two major trends have affected the French market since the beginning of the year. One is the low volume of take-up for new grade A warehouses. The other trend is that until now France has been able to avoid another recession, but GDP growth dropped significantly in Q1 2012 and the prospects for 2012 remain fragile.
In the UK, take-up reached 1.4 million m², increasing by 5% in H1 2012 compared to H1 last year. The Midlands (Birmingham) accounted for the largest market share in the UK whilst the North West (Newcastle) recorded the strongest growth in take-up. Overall take-up for 2012 is not expected to attain the volumes recorded over 2010 and 2011, mainly due to the tough British economy.
In some countries, such as Romania and Poland, developers have been focusing almost exclusively on build-to-suit projects. In Slovakia, some speculative developments are being considered but the low level of demand is holding back the logistics market. In the Netherlands, the market has been stable but sluggish. Supply levels have continued to increase with the release of outdated warehouses that no longer meet occupiers’ requirements. In Spain, finally, vacant space decreased as well as take-up, reflecting the slow activity in new developments and the poor economic climate.
Investors avoiding risks by focusing on prime assets in the most liquid sectors: Germany, the UK and France
Commercial real estate investment decreased by 8% between Q2 2011 and Q2 2012 on a rolling year basis reflecting a downturn in the retail sector. In the same time, industrial investment increased by just 5%. However, this only represented 9% of total commercial real estate investment in Western Europe. Office investment remained the most attractive asset representing some 51% of the total volume. It rose substantially, as it was boosted by some large transactions in the most liquid markets.
Industrial investment in Western Europe stayed low in Q2 2012 accounting for a €8.9bn on a rolling year basis, representing just one third of the industrial investment volumes recorded in 2007. Investors have turned to more secured assets mainly targeting the most liquid European countries in particular the UK, France and Germany. These accounted for 80% of industrial investment in Q2 2012 in Western Europe and are the main three countries that recorded a growth in investment over the previous quarter on a rolling year basis.
Prime yields remained very stable in the past few quarters. At the end of Q2 2012, they stood at 5.75% in the UK (Greater London) and 6.5% in Germany (Frankfurt). In most countries prime yields ranked between 7% and 7.75%. These are not expected to shift down in the next quarters since the impact of the shortage in new warehousing will be offset by sluggish activity.