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News Release

London, Prague

European Industrial Real Estate Investment Held Up in Q3 Despite Financial Markets Tensions

Total Industrial Transaction Volumes Hit 2.3 billion EUR, Up 13% According To Jones Lang LaSalle Research 


Prague, 15 November 2011 – European industrial investment volumes rebounded strongly in the third quarter, totalling €2.3billion, up 13% quarter-on-quarter. This follows a slow second quarter, where volumes dipped by 14%. As a result, the year to date total of €6.8billion is 15% ahead of the equivalent period last year, signalling strong investor appetite for logistics and industrial assets.

“We are seeing an increasing volume of equity targeting new investment opportunities in the sector driven primarily by attractive income returns” comments Chris Staveley, Director, Jones Lang LaSalle EMEA Capital Markets.
 
“Current transaction volumes are actually underplaying interest in the market. However, ongoing tight product in the top-end segment coupled with increasing global financial tension is holding back much stronger performance.”

Investment activity was driven by Europe’s major markets: UK, Germany and France. All three saw a marked improvement over the quarter and together accounted for 67% of the total volume in Q3. In the CEE and Russia, year to date industrial investment volumes reflected a strong 125% increase on the same period last year, with ongoing strong investor interest in a wider range of markets across the whole region. Nevertheless, volumes remain limited overall, held back by limited opportunities and a reduced appetite to take on risk.
“Prime logistics product in the Czech Republic and Slovakia continues to attract strong investor interest. Given the current challenges faced by a number of Euro zone countries, these markets are showing relatively high levels of activity. For the right product investors are both willing and able to take on larger investment volumes in excess of €100 milion. The Prague office of JLL has so far in 2011 sold in excess of €500 milion of logistic property. This trend is set to continue with projects currently in due diligence and new products being brought to the market,” says George Lewis, Head of Capital Markets at JLL Prague.  

European cross border volumes held up during the quarter while domestic investors became slightly more active, reflecting a 52% share in Q3 as they started to exert their home advantage. Nevertheless, year to date, international and US investors traded assets worth €2.0billion, which is five times more than the equivalent period last year. As a result, cross border investments continue to drive market activity, accounting for 60% of the overall year to date volume.
Chris Staveley: “With increasing investor caution and limited core industrial product across Europe, we now expect full year 2011 transaction volumes to reach between €9.0 and €9.5billion, only marginally ahead of the last year.”
Prime industrial yields have remained unchanged for the second consecutive quarter at 7.40% overall. Current prime industrial yields in the Czech Republic are at 8.00%, in Slovakia at 8,50%.  
Due to a lack of ongoing rental growth and yield compression, prime capital value growth also slowed in Q3, down to 0.6% over the quarter from 1.1% in Q2 while year-on-year growth was down to 3.6% from 4.1% in Q2. Capital value growth over the quarter was strongest in Berlin (4.4%), Düsseldorf (3.8%), London (4.2%), Munich (5.0%) and Rotterdam (3.2%). 
“We believe that there is limited potential for further yield compression in the final quarter of the year and early 2012. Therefore pricing is likely to remain flat with capital growth driven primarily by rental growth” commented Alexandra Tornow, Head of EMEA Logistics and Industrial Research at Jones Lang LaSalle. She continued: “Only a few markets are likely to buck this trend, namely historic core industrial Western European markets such as London, Paris, the main Dutch and German markets and the Nordic markets, albeit with limited overall growth.”