Industrial investment activity saw an upswing in the first half of 2010 with an 80% growth in total direct European commercial investment compared to its market bottom level of 12 months ago. Despite this significant increase, volumes remained below pre-credit crisis levels with recovery in the industrial investment market still fragile and uneven according to Jones Lang LaSalle's latest European Industrial Markets Autumn 2010 report.
European industrial investment volumes amounted to 4.3 billion in the first half of 2010, with transaction activity 12% higher than the previous half year and an increase of 77% on the same period last year (H1 2009). Compared to volumes 12 months ago, the strongest growth was recorded in Sweden (+5.6 times), Germany (+2.7 times) and Russia (+2 times) while volumes have doubled in Norway. Belgium (-67%), Finland (-52%) and the Netherlands (-54%) were the only markets to see further weakening in investment volumes y-o-y.
Norbert Müller, International Director EMEA Capital Market, Jones Lang LaSalle, said: "In Belgium, during the first half of 2010 no large logistic investment transactions were noted. Although investor appetite for prime logistic products remains, very few attractive investment opportunities are currently on the market. For the moment there is an imbalance between the long and secure income generating properties that investors are targeting and the short and flexible leases to which the logistic occupiers are willing to commit. Although it is not already evidenced in the market, the first signs are appearing that investors are again starting to consider shorter leases, but still only with high quality tenants. An increasing demand for sale-and-rent back operations is also appearing. Driven by more opportunities in the current market and low interest rates, H1 2010 saw an increased appetite for acquisitions of semi-industrial properties for own occupation."
He continued : "The UK has led the recovery in the European Investment market which in the first half of the year accounted for almost 40% of the total volume. Over the last 12 months however, investors have started to widen their focus and look to markets outside the UK; notably France, Germany, the Nordics and Poland. Despite this, 70% of industrial transactions were concentrated in only three markets in the first half of 2010; after the UK, Germany recorded the second highest volume (18%), followed by Sweden with 12%."
The findings of Jones Lang LaSalle's report show that the marked increase in investor appetite over the last 12 months for a relatively small pool of available top-end assets has driven down prime industrial yields across Europe. Jones Lang LaSalle's net initial European prime distribution warehousing yield since reaching its trough level in Q2 2009 compressed 50bps and stood at 7.80% in Q2 2010, 20bps above the 10-year average. While yield compression in H2 2009 was entirely driven by a strong rebound in the UK markets, in H1 2010 a widespread inward yield shift across continental Europe was witnessed. The overall European weighted net initial yield stabilized in Q2 and no significant further compression is anticipated in H2 2010. In Belgium, prime logistic yields hardened for the second consecutive quarter from 7.75% to 7.25% and are likely to harden further during the third quarter 2010 to 7.00%
Norbert Müller added: "The scarcity of prime product continues to hold up pricing at the top end of the market. Investors remain very interested in the sector however limited availability of prime industrial product on the market will subdue growth in investment volumes. We still expect to see further yield compression in the major markets throughout the remainder of the year however inward shifts will be less pronounced then the recent trend."
In the occupational market demand for distribution property, which is highly correlated to economic growth, has continued to show signs of recovery since the second half of 2009. Total European warehousing take-up amounted to 5.8 million m² in the fi