Prologis posts 3% rental increase in Europe in Q1

US industrial property giant Prologis has seen rents on new leases and renewals increase by 3% across its European portfolio over the first quarter of the year, European president Philip Dunne told PropertyEU.

The San Francisco-based firm has leased over 826,500 m2 of distribution space in Europe in the first three months of the year.

'Confidence is returning and I anticipate growing leasing volumes this year,' Dunne told PropertyEU. 'We have been able to push up our rents in an environment where there is little supply of new projects in many of our core markets. We will continue to see more of this, while demand will deepen in the second part of the year, and very tight supply will lead to strong rental recovery,' he noted.

In total, Prologis expects to see 20% cumulative rent growth from 2014 through 2017 across its European portfolio. The group ended the quarter with an occupancy of 92.3% across its 13.6 million m2 portfolio.

'Macroeconomic growth will soon translate into significant growth in demand for logistics real estate,' Dunne said. 'Right now Europe is providing some of the best opportunities from a value perspective. Contrary to the US, Europe has not seen the same pace of rental and capital recovery yet, but it is coming now and this makes the Continent a very attractive place to invest right now.'

Prologis' new investments during the first quarter, excluding contributions and dispositions, totalled $542.7 mln ($303.6 mln Prologis' share). The company acquired $370.5 mln ($163.1 mln Prologis' share) of buildings, principally in Europe, where it recently closed the acquisitions of 15 facilities providing 395,000 m2 of industrial space in Benelux, Germany, France, and the Czech Republic in a number of separate transactions involving portfolios and single assets.

On the capital markets front, Prologis Europe has been very active, having raised just less than €1 bn of fresh equity for its European funds in 2013, with continued interest from investors into 2014.

Dunne: 'Capital markets are slightly ahead of the actual market fundamentals. There is significant interest from potential investors and we have one open-ended fund raising capital every quarter. In some cases, there is more interest than opportunities.' The market is starting to see some cap rate compression, with the UK leading the way, followed by Continental Europe, he added.

Through April 22, 2014, Prologis raised $582.5 mln of third-party equity for its ventures, including: $283.3 mln for Prologis European Logistics Partners; $215.6 mln for Prologis European Properties Fund II; and $58.6 mln for Prologis Targeted Europe Logistics Fund.

During the first quarter, the US development giant also initiated four developments totalling 77,000 m2 – three in Poland, and one in the UK. Two of the projects are being carried out on a speculative basis.

‘There is virtually no new modern product to support growth in demand,' commented Dunne. 'One consequence of tight supply is being able to push up rents. The second consequence is that we can start to do some speculative development. In the UK rents in the core markets have reached the prior peak level so we have started a couple of spec buildings last year and we plan to continue to do so this year. We have four or five sites from the Midlands to London which are ready to go. We have just started two spec developments in Wroclaw and we will also see more speculative development in Central Europe, Belgium and Germany with continued momentum in the UK in 2014.’

At quarter end, Prologis' global development pipeline had a total expected investment of $2.3 bn ($1.9 bn Prologis' share).