JLL: Cautious European logistics market amid slow economic growth in Q1 2012 (EU)

European logistics take-up for assets of over 5,000 m² in size (10,000 m² in the UK) weakened in Q1 2012 over a buoyant final quarter of 2011. Total take-up reached just under 3 million m², down 35% quarter-on-quarter, according to the latest research from Jones Lang LaSalle.

However, take-up remained more resilient in comparison with the same quarter last year (Q1 2011), down 16% and was still 15% ahead on the 10-year average, indicating on-going resilient logistics occupier markets despite the uncertain economic outlook.

Germany, France and Poland confirmed the top three ranking seen in 2011 as a whole, accounting for more than 50% of the European total in Q1 2012. While Germany was once again the most active market, with just under 1 million m² of floorspace taken-up, activity declined 16% year-on-year in Q1 on the record levels seen last year. Meanwhile both France and Poland saw higher take-up levels when compared to Q1 2011, up 13% and 18% respectively.

Elsewhere, activity rose in annual terms in the Netherlands (+38%) and Spain (+18%) but fell in Belgium (-69%), the Czech Republic (-53%), Hungary (-55%), Russia (-5%) and the UK (-56%).

"Overall, logistics occupiers have started to adopt a more cautious approach amid uncertain predictions of trade flows due to the continued uncertain economic outlook and the Eurozone sovereign debt crisis having started to impact on exports across the region.

"Nevertheless, we expect take-up levels to remain resilient during the remainder of the year driven by a number of structural changes such as outsourcing, e-commerce and in particular a more positive global outlook with ongoing strong household demand in emerging markets," comments Paul Betts, Head of EMEA Logistics and Industrial at Jones Lang LaSalle.

"Nevertheless, total take-up in 2012 as a whole is likely to be 15% behind the record volume seen last year," he adds.

New completions reached 1.5 million m² in Q1 2012 almost 80% ahead on the equivalent period last year (Q1 2011) while 31% down on the final quarter of 2011 when a high number of build-to-suit units was delivered. However, overall completion volumes in Q1 2012 were still significantly below the 10-year average.

Furthermore, while strong build-to-suit occupier activity in the second half of last year helped to sustain a continued rise in total floorspace under construction at the end of Q1 2012, the volume of new developments starting on site in January-March declined by 8% quarter-on-quarter, indicating a weakening development activity overall.

Only Germany, the Netherlands and Russia bucked this trend, recording increasing development starts over the quarter and year-on-year.

In total 4.8 million m² remained under construction by end March 2012, with the vast majority of this space delivered on a non-speculative basis. As a result of continued non-speculative development, immediately available modern supply has virtually disappeared in the majority of prime logistics hubs across Europe.

Prime logistics rents remained broadly unchanged in the majority of markets in Q1 2012. Only two markets, Antwerp (+2.1%) and Brussels (+9.9%) recorded rental growth over the quarter, driven by dwindling supply levels. Meanwhile, rents fell in Amsterdam (-2.7%), Madrid (-3.3%) and London (-3.6%) due to a combination of slowing occupier activity and still higher vacancy rates.

"We expect prime rental levels to remain broadly unchanged in the majority of markets during the remainder of the year as scarce modern supply will still be outweighed by occupier demand. Logistics rents this year are expected to be led by Moscow, albeit with growth significantly slowing on last year's strong outcome.

"Some Western European markets are also expected to perform well, notably Belgium and Germany. Nevertheless, slowing activity amid uncertain economic growth is projected to lead to a modest decline in the European aggregate in annual terms in 2012" said Alexandra Tornow, Jones Lang LaSalle EMEA Logistics and Industrial Research.

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