European Industrial and Logistics - March 2012
European Industrial Markets – Sailing on despite economic woes Investor focus on core industrial markets intensifies amid ongoing economic uncertainty, with larger portfolio and core well located single asset deals with strong property fundamentals dominating investor activity in 2012, keeping volumes stable. Occupiers will maintain their pursuit of network optimisation while at the same time keeping tuned to difficult economic growth prospects. Although a slowing occupational market is in store for 2012, improvements in leading indicators at the start of the year point to a soft landing. Capital growth prospects remain subdued in 2012 due to a lack of rental growth and increasing upward pressure on yields.
2 On Point • European Industrial and Logistics • March 2012
Jones Lang LaSalle Industrial Capital Markets Transactions
Distribution Centre, Huddinge Sweden Purchased on behalf of Rockspring Q4 2011
15,000 sq m
€35m UK Logistics Fund UK Sold on behalf of Legal & General, Hermes & LIM
Q1 2012
408,773 sq m
€350m West Logistics, Nivelles Belgium Sold on behalf of Redevco Q4 2011
80,000 sq m
€49m D5 Logistics Park, Stribro Czech Republic Sold on behalf of Panattoni & Standard Life
Q4 2011
65,000 sq m
€36m VGP Portfolio II Czech Republic Sold on behalf of VGP Q4 2011
200,000 sq m
€108m Gefco Distribution Centre, Warsaw Poland Sold on behalf of Invista Q2 2011
15,000 sq m
€7m Castel San Giovanni Italy Purchased on behalf of DEKA Q3 2011
64,000 sq m
€37m Corridor portfolio France Purchased on behalf of GLL Q4 2011
280,000 sq m
€177m Logistics Centre Hannover Germany Purchased on behalf of Deutsche Post DHL - Q3 2011
35,400 sq m
€ confidential
On Point • European Industrial and Logistics • March 2012 3
European Industrial Real Estate Key Messages Investment Markets • Investor focus on perceived “safe haven” of core Western Europe – UK, Germany and France – intensifies amid rising uncertainty about economic growth • Focus on core assets in core markets is pushing cross-border capital flows • Increasing demand from international and non-European investors (US, Middle East and Asian) who are seeking larger portfolio deals in Europe • Ongoing yield compression is led by the main CEE countries and Russia while it remains selective in Western Europe. Overall, prime yields are projected to stabilise in 2012. Occupier Markets • A strong final quarter helped 2011 to close at record levels despite economic indicators that have trended downwards since the summer • Germany remains the star performer in terms of occupier activity and development, while Poland and Russia have climbed the ranking due to strong domestic demand • Diminishing modern supply has led to hardening occupier conditions, but faltering economic growth is likely to restrain rental growth in 2012.
Uncertain economic prospects but leading industrial indicators point to a soft landing in 2012 The global economic background has deteriorated further over recent months as Europe’s sovereign debt crisis has pushed the Eurozone to the brink of recession. At the start of 2012, risks are skewed firmly on the downside. Ongoing efforts, including changes in government, strict austerity measures and high-level intergovernmental summits have not resolved the continuing tensions in the debt markets. The risk of a further escalation of the crisis remains high. Despite the serious backdrop of these economic conditions, the European industrial market showed improving activity over the final quarter of 2011, although the picture remains uneven across the region. Going forward, we expect stalling global growth to lead to slowing industrial occupier activity.
However, on a positive note, the JP Morgan Global Manufacturing Purchasing Managers Index (PMI) edged marginally higher in January for the second month running, to a seven-month high, signalling improving market conditions – albeit that the global manufacturing sector continued to record below-trend growth at the start of 2012. Similarly, January’s Eurozone Manufacturing PMI has indicated healthier conditions, with Germany returning to growth. The European Commission’s Manufacturing Sentiment Index also points to better expectations for export volumes and employment in both the EU and the Eurozone. Industrial occupier and investment markets perform betterthan-expected in 2011 Despite the uncertain economic climate and signals of a slowdown in industrial markets after the summer, a particularly strong final quarter meant that both the occupier and investment markets topped 2010’s results. This was especially evident in the occupational market, where ongoing network optimisation and changing consumer demand – with the influence of e-commerce getting noticeably stronger – pushed volumes to end the year at a new record high. Industrial investment activity benefited from a rebalancing of portfolios, that brought slightly more product to the market as well as rising demand from a growing range of increasingly diverse investors, in particular global players (US, Middle Eastern and Asian) seeking larger portfolio deals in Europe. However, both occupier and investor markets remain constrained by limited prime product. The development pipeline – while increasing last year – is still not matching demand levels for state-of-the-art modern units. As a result, new investment opportunities at the topend segment of the market continue to be squeezed as well. This, in particular, held back higher investment activity in 2011. Most significantly, investor focus on core Western Europe – the UK, Germany and France – intensified during the last months of the year with the increasing perception of these markets as a “safe haven” in a low-growth environment and this trend is expected to continue in 2012.
4 On Point • European Industrial and Logistics • March 2012
Industrial Capital Markets Industrial investment volumes robust despite rising uncertainty European industrial investment rose to its third highest volume on record in 2011, topped only by the boom years of 2006 and 2007. In total €9.9 billion was transacted, 18% ahead of 2010. Most notably, activity strengthened in the latter months of 2011, offsetting anticipations of a slowdown after a temporary dip in May-June to see €5.4 billion recorded in H2 2011, a 19% increase on the upwardly revised previous half year (H1 2011) and 29% higher than the second half of 2010. Final figures show that, despite the numerous economic headwinds, European industrial assets continue to attract significant interest.
billion €
European Industrial Investment Volumes 18,000 CEE and Russia
16,000
Western Europe
14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 2004
2005
2006
2007
2008
2009
2010
2011
Source: The Jones Lang LaSalle February 2012
Robust industrial investment activity last year reflected both a healthy appetite to rebalance existing portfolios within stabilising market conditions and a strong demand from a growing range of increasingly diverse international investors; this trend is expected to continue into 2012. Focus remains on core Western Europe The core Western European markets1 continue to be the most traded, and together accounted for over 60% of the total transaction volume in 2011. Most significantly, investor focus on these core markets intensified in Q4 2011. Overall volumes rose almost 60% over the quarter to €2.3 billion, reflecting a 76% share as the area is perceived as a “safe haven” in the current low-growth environment. Activity in core Western Europe continued to be led by the UK, where activity soared in the final months of the year. More than €1.2 billion of transactions took place in December alone, when five significant portfolios changed hands, including the purchase of UK Logistics Fund by a joint venture between listed REIT SEGRO and Moorfield from Hermes REIM for €367 million, reflecting a 6.30% net yield and the Teal Portfolio sold to Blackstone for €250 million by ProLogis. These two deals also marked the largest industrial 1
UK, Germany and France
transactions in 2011 across Europe overall. As a result, full-year volumes in the UK reached almost €4 billion, 41% ahead of 2010 and reflecting by far the largest share across Europe (40%). Investment in French industrial assets posted the second strongest growth in the final quarter (+17%). Full-year 2011 volumes were 11% ahead of 2010, although the €900 million traded accounted for the lowest volume among the top three (UK, Germany and France). The most significant investments included Portefeuille Corridor, which was sold to German investor GLL Real Estate Partners by AEW Europe for around €170 million, reflecting a 7.50% net yield and Portefeuille France Entrepot purchased for around €110 million by US group Carval Investors from French listed REIT Gecina. Industrial transactions reached €1.2 billion in Germany, reflecting a moderate 6% growth over the full year. Furthermore, Germany was the only market among the “top three” to see volumes contract in Q4, down by 38% over the quarter, although this was mainly due to a lack of existing core opportunities. In contrast to the UK and France, only one important industrial portfolio changed hands in Germany – the sale of the IIF Portfolio to Goodman Fund for almost €160 million. Strong build-to-suit activity for prominent covenants meant that, otherwise, investors focused on large-size single distribution warehousing assets. Benelux benefits from the appetite for core, while limited opportunities restrain the Nordics Elsewhere in Europe, one of the healthiest annual growth rates was seen in Benelux, up 126% in 2011 year-on-year. The area benefited from significant competition for limited core assets within the “top three” markets. As a result, investors increasingly expanded their activity into neighbouring Benelux, perceived as a natural extension to core Western Europe. Nevertheless, activity in the Benelux slowed in the final quarter as the number of existing investment opportunities fell considerably. Even so a number of major transactions closed at the end of the year, including the Nivelles Carrefour distribution centre in Belgium, sold to a Belgium institutional investor for around €50 million, and the Hitachi Distribution Centre in the Netherlands for around €30 million, reflecting continuing strong investor interest for new-build logistics assets let to strong covenants in the region.
On Point • European Industrial and Logistics • March 2012 5
Industrial investment contracted slightly in the Nordics despite the regions relative economic strength. Occupier activity remains stable and development opportunities continue to be limited, which has impacted on new product coming to the market. As a result, the region’s strongest industrial investment markets - Norway and Sweden - both saw declining volumes over the year. Rising volumes (based on very low levels) in Denmark and Finland could not offset this slowdown with overall volumes down 9% in 2011 across the whole area. Nevertheless, there remains a strong appetite to invest in Nordic industrial assets, driven by Nordic pension funds and private investors as well as international investors seeking to diversify from Euro dominated markets with robust economic output, looking in particular at Sweden and Norway. A trend which was confirmed by the purchase of a distribution facility in Stockholm by Rockspring, reflecting a 6.9% net yield. Southern periphery continues to suffer economic woes The southern periphery of the Eurozone - heavily hit by the sovereign debt crisis – saw transaction activity falling further in H2 2011 and, for the full year, volumes were down by 39% in comparison to 2010. This was driven by declining volumes in Italy (-43%) and Portugal (-91%) year-on-year, while activity expanded in Spain in the same comparison, although total volumes remained well below the €200 million mark. Some of the most notable investments in H2 included the purchase of a distribution centre in Castel San Giovanni (Piacenza) by German open-ended fund Deka for €37 million from local developer Vailog, reflecting a net yield around 7.20%, as well as a distribution centre located close to Madrid sold by a private Spanish investor to AXA REIM for €36 million, reflecting a net yield around 8.25%. Industrial Investment by Geography 2011 4%
1% 3%2%
UK Germany
6%
Focus on CEE 2011 marked the highest ever transaction volume for industrial assets in Eastern Europe (CEE and Russia), albeit only slightly ahead of the sector’s boom year 2007. In an annual comparison, activity rose by 10% to exceed the €900 million mark. Activity in the region was driven by the core CEE (Czech Republic, Hungary, Poland and Slovakia) where industrial volumes reached €630 million in 2011, 156% ahead of 2010. Despite the figures in core CEE being skewed by two large portfolios sales in the Czech Republic, reflecting more than half of the CEE total, the total does reflect the current level of investor appetite in the market. Investment activity in markets outside core CEE remains highly volatile and in 2011 dropped to zero as these markets continued to be perceived as “less established” industrial areas and a higher risk environment. Most notably, foreign capital governed the market in 2011.Crossborder capital accounted for 97% in CEE (excluding Russia) by value in 2011 with the only domestic activity seen in Poland, reflecting 14% of its total. Cross-border capital was predominantly European money buying assets worth almost €500 million. Only 17% of this came from the CEE region itself, represented by the €73 million purchase of the Lozorno Logistics Park in Slovakia by the Czech CPI Group. The remaining European capital invested in the region was mainly reflected by the region’s largest ever industrial investment in the Czech Republic, seeing Tristan Capital Partners and AEW purchase VGP Portfolio I in excess of €200 million and Tristan Capital Partners’ VGP Portfolio II for more than €100 million. International capital accounted for 90% of the total CEE volume and was reflected by the two VGP Portfolio sales.
France Benelux
7%
40%
Sweden Norway
8%
As a result of significantly increased activity, CEE marked its highest ever share of capital invested in industrial assets across Europe, reflecting more than 6% of total volumes.
CEE Southern Europe
8%
Russia 9%
12%
Source: The Jones Lang LaSalle February 2012
Finland Others
The Russian industrial investment market remains highly volatile and continued to be perceived by investors as a higher risk environment. Volumes contracted by almost 50% in 2011 on the stellar 2010 results, however there remains investor appetite for institutional quality product which is reflected by the strong pipeline of deals in the market.
6 On Point • European Industrial and Logistics • March 2012
Cross-border capital dominates activity Industrial assets continued to attract significant cross-border capital in 2011. In total, €6.5 billion of cross-border transactions were recorded last year, reflecting 65% of the total European volume. This was notably up from only 34% in 2010 and the 48% average in 2005-2011. Activity was led by CEE, while elsewhere in Europe Denmark accounted for the highest share of cross-border transactions in its market at 78%, followed by Germany (77%), the Netherlands (72%), Spain (72%) and the UK (70%).
However, investments by the same investor group elsewhere in Europe, including destinations such as Russia, Italy and Spain, highlight the strong attraction of new-build distribution assets let to prominent covenants on a longer-term lease basis in markets with a higher growth potential over the medium term. Destination of globally sourced Capital 2011 % of globally sourced capital within the market
0.04 20
The significant increase in cross-border activity in 2011 was largely as a result of investor focus on core assets. In the current uncertain economic environment, investors prefer to invest in locations that they perceive as a “safe haven” rather than opting for exposure to higher risk locations. As a result, focus on the “top three” markets intensified, seeing both more foreign capital entering and foreign investors exiting as hardening yield levels in selected locations offered improved opportunities to capitalise on investments.
74
13
44
40
15
50
89
28 17
25
Source: The Jones Lang LaSalle February 2012
Grove
Triangle Portfolio
UK
Blackstone
London&Stamford
Globally sourced capital focused on “top three” markets More than half of the globally sourced capital invested in European industrial assets in 2011 was invested in the UK. Nevertheless, among the “top three”, the UK continues to see the lowest share of non-domestic capital. Furthermore, capital from outside the UK was led by international investors while that from elsewhere in Europe remained virtually absent. Germany attracted 17% of the global capital, followed by France with 8%. While both markets recorded a similar share of domestic capital invested – approximately one-third of the total – Germany was the most international of the “top three” whereas non-domestic investments in France were driven by European money.
European Prime Distribution Warehousing Yield Index 11 10 9 8 7 6 Western Europe
5
Western Europe excl. UK
Eastern Europe
Eastern Europe excl. Moscow
Q4 2011
Van Riet
Q3 2011
REEFF
Russia
Q2 2011
AEW Europe
UK
South Gate Park
Q1 2011
VGP
Q4 2010
AEW/Tristan
Q3 2010
Czech
Ongoing yield compression in 2011 was led by CEE and Russia, with the region’s sub-index compressing by 30bps on an annual basis. Hardening yield levels in the region were substantially driven by the Russian capital, down by 50bps year-on-year in 2011. Excluding Moscow, CEE yields moved in 20bps compared to just 10bps in Western Europe.
Q2 2010
ING Real Estate
Q1 2010
ProLogis
Goodman
Q4 2009
Blackstone
Q3 2009
Distribution Centre
UK Germany
Q2 2009
VGP Portfolio I and II
Vendor
Q1 2009
IIF Portfolio
Purchaser
Q4 2008
Teal Portfolio
Location
Q3 2008
Asset
Q2 2008
Notable Investments involving globally sourced Capital
Yield stabilisation The Jones Lang LaSalle European Weighted Prime Distribution Warehousing Net Initial Yield Index2 remained unchanged in the final quarter of 2011 at 7.40% for the third consecutive quarter, 5bps below the 10-year average. Stabilising yield levels over the last few quarters meant that yield compression slowed to 10bps on a yearon-year basis by the end of 2011.
Q1 2008
In addition, globally sourced capital reached 38% of total industrial transactions in 2011, significantly up on 13% in 2010 and its last peak in 2005 (30%). Globally sourced capital accounted for €3.7 billion worth of transactions, marking a threefold increase on 2010 and increasingly includes money from Asia Pacific and the US.
Source: The Jones Lang LaSalle February 2012
2 Incl. Amsterdam, Antwerp, Barcelona, Berlin, Birmingham, Brussels, Budapest, Dublin, Düsseldorf, Frankfurt, Glasgow, Hamburg, Leeds, London, Lyon, Madrid, Manchester, Milan, Moscow, Munich, Paris, Prague, Rotterdam, Stockholm, Warsaw
On Point • European Industrial and Logistics • March 2012 7
Yields continued to harden in a variety of markets on an annual basis, although inward movements slowed considerably if compared to the compression seen from the start of 2010. However, yield levels stabilised in the final quarter of 2011 with virtually no further movement across Europe. UK regional markets were the only exception, as limited opportunities within the London area sustained stronger competition across the region. Therefore, across the board, yields compressed 25bps. By contrast, yield levels at the end of 2011 started to soften in Milan (+15bps) and Barcelona (+25bps), highlighting the reluctance to invest in markets hit significantly by the Euro crisis. 2012 Market Outlook remains mixed Industrial investment activity overall is expected to remain in line with last year’s level, although downside risks from the Eurozone sovereign debt crisis could have a substantial effect on transaction activity. We anticipate that activity is likely to continue to concentrate on larger portfolio and core, well located single asset deals with strong property fundamentals. Therefore, market focus will remain on core Western Europe, Benelux and the Nordics, while investors will consider core CEE (Poland, Czech Republic and Slovakia) as an increasingly attractive market. Going forward, we expect that yield compression will remain restricted. In 2012, any compression is again expected to be led by CEE (driven by Moscow) while the Western European sub-index is expected to soften slightly with movements anticipated to become more diverse this year. Nevertheless, continuing mild yield compression in selected Western European countries is seen as likely, while in the majority of markets, yields should stabilise on current levels.
8 On Point • European Industrial and Logistics • March 2012
Industrial Occupier Markets Occupier activity buoyant despite weakening global growth Annual take-up reached a new record of 16.3 million sq m in 2011, 12% ahead of 2010 and 59% higher than the 10-year annual average, despite deteriorating economic growth prospects over the second half of the year. Indeed, expectations of softening activity in the second half of 2011 seemed to be confirmed by a slower third quarter. However, occupier activity rebounded in the last three months of the year. As a result, take-up in H2 2011 was a marginal 4% ahead of the previous half year (H1 2011) and 1% if compared to he second half of 2010 (H2 2010).
million sq m
Take-up Volumes 10
CEE and Russia
Western Europe
8 6 4
In contrast, occupier activity declined in the Czech Republic (-47%), Russia (-14%), Spain (-5%) and the UK (-47%). However, if compared to the 10-year annual average, almost all markets saw significantly stronger take-up volumes in 2011. Volumes in the Czech Republic fell in line with the 10-year average, while the final result is actually underplaying occupier demand in the market, held back by limited supply levels in the most sought-after locations. This was reflected in a 17% increase in net absorption in 2011 if compared to 2010. A significant exception though was the UK, showing a considerable drop in activity (-12%) in the same comparison. This was driven by manufacturers and logistics companies starting to adopt a “wait-andsee” approach in the wake of the Eurozone crisis and the UK’s bleak economic growth prospects, appearing earlier in 2011 then in many other European countries. Furthermore, a significant reduction in supply of available modern distribution buildings, in combination with the need for long lease commitments to justify new build-to-suit development meant that occupier demand could not always be satisfied.
2
Take-up by Geography
0 H1 2007 H2 2007 H1 2008 H2 2008 H1 2009 H2 2009 H1 2010 H2 2010 H1 2011 H2 2011
Germany
2%2%
Source: The Jones Lang LaSalle February 2012
France
10%
Most notably, stronger occupier activity on an annual basis was seen in the majority of markets, including those countries where economic growth remained squeezed or even contracted in the latter part of 2011. This was driven by ongoing network optimisation and outsourcing, as well as robust demand originating from ecommerce and considerable domestic demand in emerging markets both in Central and Eastern Europe and Asia. Germany strengthens its position at the top Germany continued to see the strongest activity, accounting for 31% of the total European volume. For the first time take-up exceeded the 5 million sq m mark in 2011, 38% ahead of that achieved in 2010. Activity was driven by a significant number of large-size builtto-suit leases and buoyant demand from e-commerce activities, including more than 500,000 sq m taken-up by e-retailer Amazon in four different locations across Germany. However, the healthiest growth in occupier activity in 2011 was seen in Belgium (+121%) - although growth came from subdued levels – France (+52%) and Hungary (+52%). Moreover, substantial growth was evident the Netherlands (+20%), Poland (+28%) and, slightly surprisingly, Italy (+26%), where activity was driven by continued upgrading into modern space and outsourcing.
31%
Netherlands UK
10%
Belgium Spain
6%
Italy Poland
6% 11%
6% 7%
Russia Czech Republic
9%
Hungary
Source: The Jones Lang LaSalle February 2012
CEE and Russia benefit from expanding distribution markets Ongoing buoyant occupier demand saw Poland and Russia climb the ranking of square metres taken up in 2011, respectively recording 1.7 million and 1.6 million sq m. Changing demand dynamics mean that the historic “top three” ranking - Germany, the UK and France – which have led activity over the last decade, will probably have to compete with the two leading Central and Eastern European markets going forward. However, on a positive note, significantly increased activity in CEE and Russia was not the result of occupiers abandoning Western European locations. Instead, take-up activity has risen due to both a maturing distribution market with ongoing network optimisation and outsourcing across the board, and strong domestic demand in CEE and Russia.
On Point • European Industrial and Logistics • March 2012 9
Germany recorded the highest level of new completions in 2011, amounting to almost 2.2 million sq m, and reflecting 37% of the European total. This was driven by a number of large-size developments with at least 10 distribution centres started on site during last year each exceeding 50,000 sq m of new floorspace. Most significantly, total new completions in 2011 were 58% ahead of the 10-year annual average. Nevertheless, the strongest growth was again witnessed in Belgium, driven by a port-centric built-to-suit development in the port of Antwerp for more than 200,000 sq m. As a result, total new completions in 2011 were 135% ahead of 2010 and 28% ahead of the 10-year annual average.
But shrinking pipeline volumes signal softening activity in 2012 Despite ongoing strong occupier activity in the second half of 2011, the level of new development starts declined marginally in H2 2011, down 7% on H1 2011. Therefore, floorspace under construction in January 2012 was 5% below the volume recorded six months earlier, pointing to slowing completion volumes in the first half of 2012. Nevertheless, floorspace under construction in January 2012 was still 26% higher than 12 months ago. The development pipeline continues to be led by Western Europe, accounting for 3.5 million sq m under construction at the start of January 2012, though marginally down on six months earlier (-4%). Across CEE and Russia, development activity declined by 6% in the same comparison to 1.2 million sq m, with activity still held back by slightly higher levels of modern supply. Despite a majority of markets still recording, in January 2012, higher development pipelines than a year earlier, only France, Italy and Poland recorded ongoing expansion in pipeline volumes during H2 2011, while all other markets saw floorspace under construction in January fall behind the volume recorded six months earlier. Development Pipeline by Geography .000 sq m
Strengthening development activity driven by build-to-suit The volume of new completions continued to rise during the second half of 2011, eventually recording the highest volume since the second half of 2008. As a result, in excess of 5.8 million sq m of new floorspace was completed in 2011 overall, 18% more than during 2010. The increase was driven by buoyant occupier demand in prime locations, with limited available modern supply leading to strong build-to-suit development volumes. Therefore, only four countries saw contracting completion volumes in 2011 on an annual level: Hungary (-86%), Italy (-7%), the Netherlands (-23%) and Spain (-21%).
2,000 under construction
1,800 1,600
5-year annual completions average
1,400 1,200
million sq m
Development Activity 5
Completions
Under construction
4 3 2 1
Source: The Jones Lang LaSalle February 2012
Q4 2011
Q3 2011
Q2 2011
Q1 2011
Q4 2010
Q3 2010
Q2 2010
Q1 2010
Q4 2009
Q3 2009
Q2 2009
Q1 2009
0
1,000 800 600 400 200
Source: The Jones Lang LaSalle February 2012
Russia
Poland
Czech Republic
Hungary
Germany
France
Italy
UK
Netherlands
Spain
0 Belgium
Elsewhere in Europe, only France saw new completion volumes in 2011 exceed its 10-year annual average (+30%) while, in the same comparison, volumes fell in line with the average in Italy. In contrast, new completions were still significantly below their respective 10year annual averages across the remaining countries. Slower volumes were mainly driven by continuing higher modern supply levels and/or more limited occupier demand.
10 On Point • European Industrial and Logistics • March 2012
Buoyant demand was driven by ongoing network optimisation and a strongly expanding e-commerce sector. Significantly increased e-commerce activity has resulted in robust demand from this segment which accounted for around 17% of total takeup last year. This was led by a number of large deals including Amazon (over 500,000 sq m in different locations) and Zalando (over 110,000 sq m in two locations). Furthermore, considerable demand came from the automotive sector, driven in particular by healthy exports to Asia. Notable leases included a 52,000 sq m distribution centre for BMW (via 3PL Schenker) and 50,000 sq m taken by VW Group. In general, the German market benefits from excellent transport infrastructure, significant land availability for new developments – outside the “Big 5” - and its geographical location in the middle of Europe, as well as its relative economic strength as the leading Eurozone and EU economy. Therefore, we expect Germany to remain at the top of the ranking, at least for the medium-term, despite strengthening demand in CEE and Russia. Despite ongoing strong occupier activity, development remains firmly non-speculative. Therefore, even with a new completions total of 2.2 million sq m in 2011 that was 23% ahead of 2010 and – most notably – almost 60% above the 10-year annual average, overall vacancy levels continued to edge down last year. As a result, prime rents rose across the board in 2011 and this trend is expected to continue in 2012, although the pace of rental growth is likely to decelerate in comparison with last year.
European Logistics Rental Index 10 Western Europe
Eastern Europe
5 0 -5
Q4 2011
Q3 2011
Q2 2011
Q1 2011
Q4 2010
Q3 2010
Q2 2010
Q1 2010
Q4 2009
Q3 2009
Q2 2009
Q1 2009
Q4 2008
-15
Q3 2008
-10
Q2 2008
Germany’s “Big 5” (Berlin, Düsseldorf, Frankfurt, Hamburg and Munich) saw take-up rise to 1.4 million sq m in 2011, 27% ahead of 2010. Nevertheless, occupier activity continued to be focused outside of the “Big 5”, accounting for 3.6 million sq m, up 43% in comparison to 2010. This was partly driven by a gap in modern supply and by a limited availability of development sites within the large markets. Despite this trend, Germany’s “Big 5” plus Hanover all ranked within the top 15 largest markets in Europe in 2011. Activity was led by Hamburg, where almost 470,000 sq m was taken-up in 2011, followed by the Ruhr area and Frankfurt.
Q1 2008
In 2011 Germany’s industrial occupier market achieved its eighth consecutive year at the top of the European ranking. Most notably, last year’s market share expanded strongly, up to 31% from its 25% 10-year annual average and from the 28% recorded in 2009-2011.
Rental Development Following nine consecutive quarters of falling annual rents, the Jones Lang LaSalle European Weighted Prime Distribution Rental Index3 started to see expansion in the second quarter of 2011. By end 2011, the index had risen 1.3% year-on-year, although rental growth on a quarterly basis started to slow in H2 2011 driven by falling rents in a number of markets that were either hit by subdued economic growth, robust austerity measures or still high vacancy levels.
%
Focus on Germany
Rental growth in 2011 was led by CEE and Russia, with the subindex for the region recording an annual uplift of 9.2%. Rents increased across all markets (Moscow: +17.4%; Prague: +5.9%; Warsaw: +6.1%) with the exception of Budapest, where levels were stable. In contrast, the Western European sub-index continued to contract, down by 0.3% in 2011 year-on-year. Overall growth in Western Europe was held back by falling rental levels in Barcelona (-7.1%), Dublin (-10.5%), Leeds (-4.6%), Lyon (-4.2%), Manchester (-4.6%) and Paris (-1.9%). On a positive note, shrinking modern supply levels meant that rents started to increase in a number of markets including Berlin (+4.4%), Düsseldorf (+3.8%), Frankfurt (+1.7%) , Hamburg (+3.8), London (+3.7%), Munich (+5%) and Rotterdam (+1.6%).
3 Incl. Amsterdam, Antwerp, Barcelona, Berlin, Birmingham, Brussels, Budapest, Dublin, Düsseldorf, Frankfurt, Glasgow, Hamburg, Leeds, London, Lyon, Madrid, Manchester, Milan, Moscow, Munich, Paris, Prague, Rotterdam, Stockholm, Warsaw
On Point • European Industrial and Logistics • March 2012 11
Occupier Market Outlook At the start of 2012, occupier requirements remain at a healthy level in most European markets. However, it is safe to assume that slowing economic growth, in particular falling manufacturing output and exports, is leading to shrinking occupier activity. Nonetheless, we anticipate that occupiers will maintain their pursuit of network optimisation – improving their overall supply chain management and gaining a competitive advantage from improved lead times and environmental aspects – and, by doing so, will keep activity in good shape, albeit in anticipation that take-up levels will remain behind last year. All the same, we expect negotiations to become tougher as occupiers keep tuned to economic growth prospects At the same time, development activity is expected to fall off further, at least in H1 2012, due to a combination of tighter occupier markets and bank lending restrictions. As such, the supply gap for modern assets is likely to deepen in many markets, prompting further rental growth in a limited number of selected markets during 2012. Rental increases will still be led by Moscow, while rents are expected to stabilise in CEE. In contrast, rental growth prospects in Western Europe are uneven with rental uplifts in a few markets offset by declining rents in a number of locations with still significant vacancy. As a result the overall Western European rental sub-index is projected to remain flat in 2012.
12 On Point • European Industrial and Logistics • March 2012
European Logistics and Industrial Capital Markets Team EMEA
EMEA Research
Corporate Finance
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+46 31 708 53 04
+90 212 350 08 20
On Point • European Industrial and Logistics • March 2012 13
European Industrial Leasing Team Belgium
Croatia
Czech Republic
England
Finland
France
Walter Goossens
Sinisa Dadic
Harry Bannatyne
Tim Johnson
Katri Lehtonen
Jean-Marie Guillet
+32 2 550 25 47
+385 1 4826 114
+ 420 602 490 217
+44 20 087 5300
+358 400 46 77 36
+33 4 78 17 13 32
Germany
Hungary
Ireland
Italy
Netherlands
Poland
Rainer Koepke
Roland Kis
Nigel Healy
Roberto Piterà
Bas Geijtenbeek
Tomasz Mika
+49 69 2003 1116
+36 70 333 3737
+353 1 673 1635
+39 02 85 86 86 29
+31 20 540 7871
+48 22 318 02 21
Romania
Russia
Scotland
Serbia
Slovakia
Spain
Marius Scuta
Petr Zaritskiy
Neil Cockburn
Goran Ivanic
Martin Stratov
Gustavo Rodriguez
+402 1 302 3425
+ 7 495 737 8000
+44 141 567 6628
+381 11 2200 104
+421 918 119 951
+34 917891100
Sweden
Turkey
Christina Olauson
Tuğra Gönden
+46 31 708 53 64
+90 212 350 08 75
Jones Lang LaSalle: Expertise in the Industrial Sector Jones Lang LaSalle has a strong capability and track record in the EMEA industrial sector including: •
Valuation of major pan-European Funds with circa EUR 25bn of industrial valuations undertaken per year across EMEA
•
Dedicated industrial leasing team of 130 agents across all of EMEA’s major markets and market leaders in CEE
•
16 dedicated capital markets specialists in London (EMEA team) and all major markets - direct access to major EMEA and global capital sources - strong investor relationships
•
Dedicated EMEA industrial research in Hamburg working with Jones Lang LaSalle’s local research teams
In this report, we look at the drivers and future trends influencing the European distribution warehousing real estate market. In our analysis we include warehouses for storage, distribution centres, cross-docking warehouses, sorting and cleaning centres and cold storage warehouses. Our market data in the occupational market covers the 11 main European logistics markets: Belgium, Czech Republic, France, Germany, Hungary, Italy, Netherlands, Poland, Russia (take-up: Moscow only), Spain and the UK. Our analysis is based on units > 5,000 m² for Continental Europe and > 10,000 m² for the UK. Our investment market analysis is based on the whole European region and includes transactions >EUR 3.5 million (US $5million).
Jones Lang LaSalle Contacts Alexandra Tornow Associate Director EMEA Research Hamburg +49 (0)40 35 00 11 339 alexandra.tornow@eu.jll.com
European Industrial and Logistics – March 2012 OnPoint reports from Jones Lang LaSalle include quarterly and annual highlights of real estate activity, performance and specialised surveys and forecasts that uncover emerging trends. www.joneslanglasalle.eu
COPYRIGHT © JONES LANG LASALLE IP, INC. 2011. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without prior written consent of Jones Lang LaSalle. It is based on material that we believe to be reliable. Whilst every effort has been made to ensure its accuracy, we cannot offer any warranty that it contains no factual errors. We would like to be told of any such errors in order to correct them.