Investment in European logistics and industrial assets showed a strong start to the year with over €3 billion transacted in Q1 2013. This was up 111% on the same quarter last year according to Jones Lang LaSalle research.
While the total volume was driven by a significant joint venture portfolio transaction (Prologis/Norges Bank) with assets distributed across multiple European countries totalling €1.2 billion (for a 50% share), overall growth clearly demonstrates the rising appeal of the asset class. The increase was also higher than the overall growth in European commercial real estate investment (+26%) in the same comparison, with the share in logistics and industrial investment increasing to 10% of the European total in the first quarter, up from 7% over the last few years.
Europe’s Top 3 markets, the UK, Germany and France, all recorded an increase in transactional volumes on the equivalent period last year, with France recording the highest annual growth (+65%), followed by the UK (+46%) and Germany (+37%). However, over the quarter it was Germany that showed the most remarkable growth story. Around €540 million was traded in the German market in Q1 2013, up 92% on a slow final quarter 2012.
As a result, Q1 2013 marked the second highest quarterly transaction volume on record since the first half of 2008. This again was driven by the completion of a number of portfolio transactions involving international money.
The UK continued to be the most liquid European market, with transaction volumes reaching €790 million. However, whilst this was up year-on-year on a slow Q1 2012, volumes declined by 10% over the quarter due to a continued lack of core product.
“The encouraging first quarter activity confirms our positive growth expectations for 2013. Investors continue to seek greater exposure to the sector, attracted by healthy income returns, while we see further appetite for portfolio and platform deals across a number of core and emerging markets. Demand for strong income producing opportunities is supported by new stock slowly starting to come to the market, thanks in part to a structural shift in distribution networks based on growing online sales” comments Tom Waite, Associate Director European Capital Markets in Jones Lang LaSalle.
“The combination of improving sentiment across markets and a continued tight supply of prime product in the three main core markets is encouraging buyers to look at opportunities slightly further up the risk curve. We note a greater interest in shorter length income in core and established markets and to see further renewed interest in the Netherlands, together with Southern European markets such as Spain and Italy with investors now actively looking for new opportunities. Furthermore, investors are also starting to look more seriously at development opportunities, notably of assets dedicated to e-commerce logistics. adds Alexandra Tornow, Associate Director EMEA Logistics & Industrial Research in Jones Lang LaSalle.
Cross border activity rose to over 70% in Q1 2013, up from 56% in the previous quarter and 54% in 2012 as a whole, further evidence of improving logistics and industrial investor markets. France was the most internationally traded country in Q1 2013 with 90% (€210 million) of total volumes relating to cross border deals, followed by Germany with 80% (€540 million). In contrast, 75% of volumes traded in the UK were domestic.
After five quarters of falling capital values, Q1 2013 marked the first quarter of growth with values increasing by 0.5%. However, this growth was driven by only two Markets: London (+4.3%) where the prime yield compressed 25bps over the quarter and Moscow (+6.0%) due to a combination of a 25bps yield compression and a 3.7% rental growth. Southern Europe remained the only region recording ongoing capital value declines with softening yields in Madrid (25bps) and Milan (15bps), confirming expectations.
The European prime logistics yield remained stable for the third consecutive quarter in Q1 2013 at 7.50%.