A range of investors are looking at the industrial property sector a means of diversify away from office and retail, and achieving high-income returns offered by the industrial market, according to CB Richard Ellis.

A range of investors are looking at the industrial property sector a means of diversify away from office and retail, and achieving high-income returns offered by the industrial market, according to CB Richard Ellis.

CBRE's research shows prime industrial yields rose by 10 basis points (bps) in Q2 2009 to 7.93%, having risen by an average of 30 bps per quarter over the previous year. The pace of yield increase is clearly slowing, with the repricing that has already taken place proving attractive to some types of investor.

David Turner, executive director, EMEA Capital Markets, CBRE said: 'Outside of the German Funds and US Core-plus funds we have also seen a resurgence of interest from local property companies and private investors as pricing has eased, many of whom had been shut out of the market by the surge of interest in the sector from pan-European buyers over the last five or so years. As we get through the cycle, we anticipate seeing more European institutional money coming back into the market, and there are strong indications that this process has already started in the UK. The sector remains a hardy perennial to a wide audience.'

Turnover in the European industrial and logistics market totalled nearly EUR 2.5 bn in the first half of 2009, thus maintaining its 10% share of the overall investment market. Key transactions that took place in this period included Harbert’s purchase of a portfolio of UK logistics assets from Prologis for EUR 73.9 mln; AEW's acquisition, also from Prologis, of a portfolio of distribution warehouses in Germany and the Netherlands for EUR 119.5 mln; and Deka's purchase of the Sainsbury's distribution warehouse at Enfield, London, from Aviva for over EUR 70 mln.

Despite some improvements to economic indicators, occupiers of industrial property remain predominantly cautious and continue to control costs to protect margins. Whilst many manufacturers have reduced production levels in order to match levels of demand, most major European economies remain in recession with the eurozone area as a whole expected to contract by over 4% this year. Recent data suggests that producer sentiment has seen some improvement in the last two to three months, with some measures of trade volumes also stabilising, CBRE said.

CBRE's index of prime industrial rents for the EU-15 area fell by 1.5% in Q2, and has slipped by 5.3% over the past year. This conceals the fact that large declines in the quarter were confined to a small number of markets, including Spain, Ireland and Belgium. There is also considerable variation in the degree of rental change that has taken place since the peak of the market - ranging from declines of over 20% in places such as Lisbon, Dublin and Madrid, to rental stability in the main German and Dutch markets. Reductions in take-up levels have also been only moderate in some key markets, and mainly confined to small to medium-sized units.