MIPIM: Industrial investment up 28% at EUR 8b in 2010: JLL

European industrial real estate investment volumes soared by 28% to EUR 8 bn in 2010, mostly as a result of improved market fundamentals and heightened investor confidence, according to JLL's European Industrial Markets Spring 2011 research report published on Wednesday. However, overall growth in industrial investment activities was lower than the 45% increase recorded across all direct European commercial real estate investment.

Transaction activity was stronger in the first half and slowed down over the second part of the year (H2 2010), largely due to the limited pool of available prime assets. This resulted in increased competition amongst investors and ongoing yield compression, a trend which is anticipated to continue this year, JLL said.

'Investor activity in 2010 was, to a certain degree, subdued by the lack of available prime industrial assets, which meant that improved market fundamentals supported strong investor appetite and led to ongoing yield compression across Europe,' said Chris Staveley, director of JLL's EMEA Capital Markets team.

The UK remained the largest European industrial investment market last year, recording 35% of the total volume, although in euro terms volumes only rose moderately over the year (+8%) and, in local currency, actually declined 9%. Investors focussed predominantly on the major Western European markets with Germany, accounting for 14% of the total volume, the strongest country outside of the UK and the only market beside the UK to top the EUR 1 bn mark last year. Norway's fourfold growth was the strongest in the region, propelling it ahead of Sweden for the first time in 10 years and into the top three markets in Europe.

Yields continued to compress across Europe in H2 2010, although, in comparison with H2 2009 and H1 2010, compression slowed over the last six months of the year. The strongest yield compression in H2 2010 was once again recorded in Russia, where yields hardened 75 bps in Moscow from Q2 2010 and 300 bps from Q4 2009 to 11.5%.

Speculative development activity remained curtailed by ongoing difficulties in obtaining finance, and those few developers who could build with equity are still wary of the letting risk. Completion volumes did however continue to rise in H2 2010, up 30% on the previous half year, driven by mounting build-to-suit transaction activity. Even so, completion volumes recorded a five-year low in 2010 with new deliveries of around 4.9 million m² for the full year, 24% less than in 2009.

Staveley added: 'Although development starts are still dominated by non-speculative floorspace, which we expect to continue for the next few years, shrinking modern supply combined with increasingly available finance should encourage the return of the first selective speculative schemes during 2011.'