Maturing European Logistics property market increasingly attractive to institutional investors
Changes in the characteristics of the European logistics property market have continued to boost the scale and quality of investable stock and are contributing to the sector's rise as an institutionally-acceptable investment medium, according to latest research from CB Richard Ellis (CBRE).
These changes relate to the sector’s potential liquidity and investor base, and the quality of both available assets and the market’s occupier base. For instance, the expansion of outsourcing to third party logistics specialists (3PLs) has contributed to the growth in activity by specialist investors, particularly as world trade and regional infrastructure have developed. In response, the sector now accounts for around 10% of the European property investment market compared with only 6% in 2006.
The number and size of pan-European institutional funds and investors now looking at the opportunities offered by European logistics property has grown.
The stock of investable assets in the sector has also expanded for a number of reasons. Nearly 20% of transactions in the European industrial and logistics market over the past five years have been disposals by former owner/occupiers, compared with 13% for the European real estate investment market as a whole. The absolute scale of the market has also expanded. New developer-led logistics space in CEE, for instance, rose more than tenfold between 2000 and 2008.
Despite this growth, the pattern of investment activity for logistics assets is uneven across Europe, as is the relationship between current pricing and historic yield averages. The UK, in particular, has seen recent strengthening in investment volumes and accounted for over half of last year’s total European industrial investment activity.
The CBRE report suggests that, in general, high relative liquidity would be an obvious advantage in yield terms. Currently, however, the most liquid markets – France and the UK – have divergent positions in terms of their current yields relative to longer-term averages. At a local level, several markets – notably London, Paris, Madrid, Barcelona, Stockholm and Brussels – have seen yields fall from their most recent peak.
Some markets including Rotterdam, Milan and Frankfurt have so far not seen much evidence of downward yield movement, although there is clearly pressure in this direction; but this is principally because they did not move out as far to begin with.
To view the full report click on the document below.