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 industrial and logistics development pipeline in Europe largely remained 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 the main European hubs are still between 5 and 7 percent, albeit 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, however for a shorter lease length and lower rental income.
Industrial investment has fallen considerably on a quarter by quarter basis, largely as a result of a quarterly sawtooth pattern in the UK, a market which is responsible for 40 percent 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 €6 billion.
Rental growth in EMEA has strengthened compared to previous quarters, but overall remains at a modest level. As in previous quarters, growth remains concentrated on locations where new development is 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 percent, 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 the current crisis, take up activity in the I&L segment is in a position to exceed the record figures of 2013, when this indicator reached 1.23 million sqm. For the first three quarters of 2015 take up has already amounted to 1.07 million sqm. This fact has a logical explanation despite looking fairly strange on the background of current decline in retail sales, which significantly exceeds 8 percent 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 children’s goods retailers.”
