Direct industrial investment totalled 8.4 billion in 2008, 44% down on 2007, although as a sector the overall decline was not as severe as the 54% fall in activity seen across all European commercial investment according to Jones Lang LaSalle's European Industrial Markets Report released today.
Jones Lang LaSalle's research shows that investor activity last year focused on the more liquid major European logistics markets with around half of the total investment volumes recorded in the UK and Germany. Despite recording a 48% decline year on year, the UK remained the single strongest investment market totaling 2.4 billion. Investments in Germany reached 1.7 billion, 28% down on 2007, recording the lowest decline in activity across all markets. Activity in Central and Eastern Europe remained limited at around 600 billion, although the region slightly improved its share of total investments up to 7% from 5% in 2007, prime opportunities remained limited.
Chris Staveley, head of Pan-European Office and Industrial Capital Markets at Jones Lang LaSalle, said: "Investor confidence has been undoubtedly hit by the financial turmoil, however the logistics sector has continued to be of interest to investors due to its less volatile nature compared with offices and portfolio diversification. We do however expect prices to remain under pressure throughout 2009.
"Investor focus has shifted back to prime logistics hubs offering historically high occupancy rates and steady occupier demand; as such we believe that gateway locations, such as seaports, airports or interrmodal nodes near to large conurbations, could be likely winners in 2009."
Despite the weakening economic environment the European logistics occupier market recorded another buoyant year with take-up levels totaling 14.3 million sq m (1% higher than 2007). The global recession begin to impact on each country's market at different speeds, with signs of a weakening occupier demand evident across all markets by the end of 2008. Jones Lang LaSalle expects the negative market sentiment to continue to significantly impact occupier markets in 2009, with many having already begun to change their business strategies in order to reduce occupied space.
Chris Staveley added: "We expect occupier activity will principally be driven by cost reduction achieved through consolidation and strategic relocation, and therefore we expect occupiers to become even more selective regarding their requirements and decision making. We anticipate they will also look to take advantage of the more favorable market conditions and return to the main logistics hubs close to lager conurbations."
Fueled by construction projects started before the economic slowdown, new build warehousing activity reached a new record of 10.7 million m², up 12% over the previous year. Western Europe recorded the highest level of new supply in 2008 (4.25 million m²) followed by Central Europe (2 million m²) and Southern Europe (1.5 million m²). Growing concern among developers about future occupier demand has led to a significant slowdown of speculative construction activity across all markets and Jones Lang LaSalle expects that new schemes in 2009 will only be developed on a pre-let basis.
Jones Lang LaSalle's European average rental index remained positive during 2008, although annual growth slowed to 1.3%, compared with 2.3% in 2007. Prime warehousing rents remained stable in the majority of markets during 2008 with only a small number of countries recording an increase, primarily those with low levels of existing supply which subsequently allowed new developments to command higher rents.
Alexandra Tornow, head of European Industrial Research at Jones Lang LaSalle, commented: "Declining occupier demand and increasing supply levels in 2009 will lead to a general weakening rental level however we expect the market for prime logistics space to evolve inhomogeneously. With lower levels of demand for goods and products significantly impacting businesses, occupier demand will become more selective. This should favor the large gateway hubs, which we expect to see continued strong occupancy rates and rents in these locations are likely to remain stable. In markets where supply levels are increasing, landlords will have to offer more attractive leasing conditions to secure existing occupiers and attract new tenants to fill newly vacant space.”
Despite the current economic climate there are a number of ongoing longer-term themes which Jones Lang LaSalle forecasts will support the long-term growth of the logistics sector in Europe, including: The general globalization of supply chains feeding the need to transport high volumes of goods from production to consumer markets Continuing outsourcing to third party logistics service providers in order to minimize logistic costs Expansion plans from a number of retail chains, particularly the discounter sector In light of the most negative forecasts which are predicting a return to economic growth possibly as early as in 2010, demand levels should begin to rise as production levels and international trade increases.
Source: Jones Lang LaSalle