Logistics sector poised for geographic 'premier league'

A premier league of logistics locations and assets is emerging in Europe, according to Richard Holberton, director research EMEA at CBRE.

‘Despite being one of the most strongly placed countries in Europe on the basis of its economic fundamentals, Germany has been punching below its weight in this sector for some time. But that is beginning to change based on transaction evidence from last year.’

Germany posted a significant increase in logistics investment in 2012, with the total doubling to €1.8 bn, or 22% from 11% the previous year, according to provisional figures from CBRE. In total, European investment in the logistics sector was down slightly at €8.5 bn last year.

The UK remains the most dominant market in Europe, but slipped from 42% in 2011 to 37% in 2012. Southern Europe and CEE likewise posted a contraction.

Investors interested in logistics assets are not buying for prospective rental growth as there is little rental momentum at this point in the cycle, Holberton said. Speaking at the PropertyEU Logistics Investment Briefing at CBRE’s office in London last week, Holberton pointed out that the prime industrial index fell by 1% last year, but added that decline is a general feature of the market at the moment and reflects the pattern of change across the indices for other property sectors as well.

‘The only place where strong rental momentum was recorded in 2012 was at the prime end of retail the sector. The economic conditions that we’re in are stifling rental growth. It’s reasonable to expect that will broadly continue to be the case in the short term.’

Economic institutions like Oxford Economics are forecasting only marginal economic growth in Europe this year, Holberton noted. ‘It won’t be until 2014-15 before we start to see more convincing signs of European recovery and growth and even then nothing like in the early 1990s or the early part of the last decade…Demand conditions are not conducive to rental growth any time soon.’

Take-up overall in the European logistics sector was down significantly last year compared to 2011 due to weak economic fundamentals, particularly in the second half of the year. However, there are significant differences in the pattern of outlook across the region, Holberton said. ‘Southern European economies are generally expected to contract. A number of bigger western European markets will see weak growth or just under zero while growth is forecast for CEE and the expanding European periphery.’

Take-up trends also point to demand momentum in selected locations, he added. In the UK take-up increased in 2012 at the larger end of the logistics market in the segment for space of 100,000 sq ft (10,000 m2). About 60% of this take-up involved new, not previously occupied space with built to suit accounting for nearly 75%.

Holberton foresees a move towards greater polarisation in demand and procurement. ‘The overall availability of space is not far from half of what it was in 2009, but the bulk is second hand and not all of it is suitable. There is relatively little good quality new space. In some parts of the market, it’s not easy to find large volumes of well-specified space. That will have an impact on values and investor intentions.’