According to CBRE, 2015 looks set to be the strongest year on record for take-up of European industrial and logistics properties. The European appetite for consumer goods continues to grow, resulting in e-commerce retailers expanding into new dedicated sites to meet this demand.
The European industrial and logistics development pipeline remained largely stable in Q3. Germany, the Netherlands, Poland and the Czech Republic continued to see large amounts of distribution space added to existing stock. The amount of speculative development across Europe, although increasing, remains limited due to the preference for bespoke hubs.
On average, vacancy rates in main European hubs are still between 5-7%, although there is little available space in the prime market segment. This has triggered an overflow into secondary properties and locations; however, this space is predominantly being used for temporary surplus storage. The temporary nature of these occupiers means that empty warehouses are more easily filled, though for a shorter lease length and lower rental income.
Industrial investment has fallen considerably on a q-o-q basis, largely as a result of a quarterly sawtooth pattern in the UK, a market which is responsible for 40% of total investment in Europe. This pattern is caused by the closing of large portfolio deals, however the quarterly number of transactions has in fact remained stable and the moving quarterly average for investment in Europe has stayed at a record high of nearly €6bn.
Rental growth in the EMEA region has grown stronger in comparison to previous quarters, but remains at a modest level overall. As in previous quarters, growth remains concentrated on locations where new developments are harder to realise, particularly in the UK. The downward path of industrial yields is continuing, and previously higher yielding markets such as France, Italy and central European markets have moved in more clearly. The weighted average yield for EMEA has now dropped below 6.8%, and in most markets previous lows have now been reached or passed.
Machiel Wolters, head of industrial & logistics research, EMEA Research, CBRE, commented: “It is set to be a record year in terms of take up, as retail logistics operations continue to profit from strong consumption in Europe. Looking ahead, we expect to see more emphasis on last mile solutions, ideally modern parcel hubs around the big cities. Previously put off by their size, specific layouts and low ticket size, investors are now turning their attention to this asset class as reflected by a strong drop in yield levels.”
Anton Alyabiev, director of warehouse & industrial department, CBRE said: “In 2015, despite current crisis, take up activity in the I&L segment is in the position to exceed the record figures of 2013, when this indicator reached 1.23 million m². As of the three quarters of 2015 take up has already amounted to 1.07 million m².
“This fact has logical explanation despite looking fairly strange on the background of current decline in retail sales, which significantly exceeds 8% in real terms. Boost of the leasing activity is explained by the fact that both rental rates and sales prices for warehouses declined to its historical and cyclical lows. In addition, potential of their further decline seems fairly vague.
“In this situation large federal and international retailers decided to increase investments in development of their logistics system. The most active segments are food discounters, DIY, and kids goods retailers.”
