According to Jones Lang LaSalles latest European Warehousing report, the strong investment demand experienced across the European warehousing market in 2005 looks set to continue throughout 2006 as yields have fallen for the 10th consecutive quarter in Q1 2006. The weight of money chasing property assets has led to record investment volume over the last two years in all sectors. Yields in the warehousing sector are still significantly higher than for office and retail and this adds to its relative attraction as an asset. JLL expects to see warehousing investment volumes in 2006 ending at or above those in 2004-2005.
Adelaide Gray, European research at Jones Lang LaSalle commented: Warehousing is no longer regarded as a fringe asset and has out performed offices over the last four years and with an estimated E10bn chasing product during 2006, it will continue to be an attractive investment option for many fund managers.
In contrast the leasing market in 2006 is expected to see minimal rental growth as occupiers continue to look for cheaper accommodation. While interest rates remain attractive across Europe, sales of warehousing accommodation are expected to remain strong and demand for larger units is expected to become even further polarised toward locations acting as European Distribution Centres.
In the UK and France, the warehousing market has been driven by strong consumer spending, stimulating retail demand for logistics space. This trend looks set to continue during 2006 in the UK and demand for logistics space around Paris was exceptional during Q1 2006. Central and Eastern Europe continues to show a strong growth dynamic with forecast GDP growth of 5.5%, boosted by Russia (3.3%).
Spain has shown a return to rental growth as a strong economy has encouraged occupiers to expand and the slow development pipeline has created a slight undersupply in the most popular locations. The strong European economic outlook has also triggered some speculative development in the markets which should add to the investment grade stock available. Competition between developers is extremely keen and more developers continue to enter the market.
In Poland rents continue to be stable at the bottom of the rental cycle, there was even a minor increase of rents in some warehouse projects around Warsaw. Rents are however continuously under pressure due to strong competition on the market. This is expected to continue by the end of 2006 and further. There are new players entering the Polish market and more interest is seen in secondary cities. This is partially driven by significant demand from production companies, relocating production to Poland from Western Europe.
Source: Jones Lang LaSalle