2. The globalisation of manufacturing and its supply chains has been
a radical agent for change in the world’s logistics market – which in
2005 was estimated to be a €5.4 trillion industry2
, representing
13.8% of global GDP. In Europe the process of transforming from
individual national networks to an integrated international network is
still ongoing. This process was initially driven by the creation of the
single European market, was subsequently fuelled by European
Union accession and has most recently been driven by
opportunities for outsourcing logistics operations, with third party
logistics providers establishing pan-European platforms.
Occupier demand remains stable
Since the early 1990s industrial rental levels across Europe have
remained remarkably stable, particularly when compared to office
and retail sectors (see figure 1). This situation is forecast to
remain, with less pronounced cyclical change than other sectors.
Although rental levels have remained stable there is still
considerable disparity between countries, regions and building type.
However, most European industrial markets can expect to see some
rental growth in the short term (see figure 2). Stability in rents is
partly explained by the fact that speculative development has
remained low across the sector with developers concerned to
ensure that changing tenant demand is met.
The centralisation of logistics organisations and a clustering around
regional distribution hubs alongside the emergence of a global
logistics market, has meant locations close to major global sea and
air cargo sites have carried more importance in recent years.
Although this trend will continue, the market is now experiencing
decentralisation with occupiers looking to more cost effective
locations which are still well connected – in this way occupiers can
also avoid over-congestion on some of Europe’s most crowded
transport corridors. Demand away from established sites will lead to
several locations across the region rising rapidly up the hierarchy of
European logistics locations. These locations will be within the core
European logistics region but also in locations within the periphery
and emerging Europe.
1 Industrial real estate or industrial property refers to commercial premises used predominately for industrial activities; this includes production, logistics, storage, transport, distribution and
warehousing. Premises can also include administrative offices on-site.
2 Estimation of Global and National Logistics Expenditures 2002, A Rodrigues, D Bowersox and R Calantone (Journal of Business Logistics, Vol. 26, No 2, 2005)
The industrial real estate1
investment market is the third most
significant sector in Europe’s commercial real estate capital markets.
Despite a common perception of being less institutional when
compared to offices and retail, the sector has experienced
fundamental change in the last few years and is now a more
sophisticated investment prospect. Jones Lang LaSalle predicts
demand for industrial assets will remain robust with more investors
recognising its unique value-creation characteristics.
Figure 2: Short Term Rental Cycle – 3rd Quarter 2007
Note:
• This diagram
illustrates where
Jones Lang LaSalle
estimate each
warehousing market
is within its individual
rental cycle as at end
September 2007
• Markets can move around the
clock at different speeds and
directions.
• The diagram is a convenient
method of comparing the
relative position of markets in
their rental cycle.
• Their position is not
necessarily representative of
investment or development
market prospects.
Rental Growth
Slowing
Rents
Falling
Rental Growth
Accelerating
Russia
Spain
Sweden
Belgium, Ireland, Luxembourg
Poland
Czech Republic, France, Germany,
Hungary, Italy
Rents
Bottoming Out
Netherlands, UK
200
250
300
350
400
450
500
550
600
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
Figure 1: Jones Lang LaSalle European Rental Index shows Industrial rent stability
Jones Lang LaSalle European Rental Index (1980=100)
Office Rental Index
Retail Rental Index
Industrial Rental Index
3. Positive investment outlook
Yield compression, low financing rates and a lack of investable
product in the face of heavy investor demand, has led to record
transaction levels in the sector in recent years (see figure 3).
Recorded investment volumes in the last 24 months were
€26.3 billion (€50 billion between Q1 2003 and Q2 2007)
of this €6.1 billion was transacted in the first half of 2007, which
represented 6% of the total commercial market investment volume.
The sector has remained reasonably resilient in the face of this
summer’s credit crisis with post-summer yields remaining at
pre-summer levels in most continental European markets. Recent
evidence points to a solid depth of investor interest in the sector
and bidding remains strong, particularly for quality assets.
Compared with office and retail sectors industrial prime yields have
displayed some insulation against credit market conditions, with
only a few markets recording an outward movement in prime yields.
A further contrast to the retail and office sectors is that almost all
industrial markets across Europe maintain a positive yield gap
between prime industrial yields and financing rates (see figure 4).
Forward looking summary
Jones Lang LaSalle is optimistic about the future for the industrial
investment sector in Europe. The most obvious strength of the
sector at the moment is the positive prime yield gap over financing
rates, not currently experienced in other commercial sectors. The
continuing maturity and unique investment attributes of the sector
will not go unnoticed by investors looking for a way to diversify real
estate portfolios and to realise more stability in an uncertain market.
The industrial real estate sector provides a good source of diversity
due to the variety of activities that take place in industrial premises.
However, the contrary to this is that specialist knowledge is vital in
order to gain meaningful access to the sector. Changes in global
logistics operations and business models, understanding cross-
border regional clustering, and anticipating future logistics locations
within established and emerging markets are all issues which need
to be understood and addressed when looking to leverage this
sector. Jones Lang LaSalle advises traditional industrial investors
and experienced real estate investors who may be new, or who
are returning, to the sector. To talk about industrial investment
opportunities or our European multi-disciplinary capability, contact
us on one of the numbers on the back cover.
“Occupiers continue to be under cost pressure
leading to demand for larger warehousing
units, cross-docking and bespoke facilities,
often away from established hubs but
on well-connected sites.”
Rainer Koepke, Jones Lang LaSalle, Frankfurt
0
1
2
3
4
5
6
7
8
Q32007
Q22007
Q12007
Q42006
Q32006
Q22006
Q12006
Q42005
Q32005
Q22005
Q12005
Q42004
Q32004
Q22004
Q12004
Figure 4: Positive yield gap over financing rates for the industrial sector
%
Euro 5-Year Swap
European Prime Office Yield
European Prime Retail Unit Shop Yield
European Prime Industrial Yield
0
2
4
6
8
10
12
14
16
18
2007 H1200620052004200320022001
Figure 3: Investment volumes have increased rapidly
€ billion
4. Belgium
Europark 1026, 26,000m2
,
Houthalen.
Sold on behalf of a private
developer.
England
Radius Park, 21,749m2
,
Heathrow.
Sold on behalf of LaSalle
Investment Management.
Germany
Logistics park and offices,
22.758 m2
, Hamburg-Billbrook.
Sold on behalf of Schröder
Beteiligungsgesellschaft mbH
& Co. KG.
France
Bâtiment B, 36,065m2
, ZAC des
Portes de Provence, Montélimar.
Sold on behalf of Geprim.
Italy
The Vailog portfolio, 116,000m2
,
three assets in Magenta, Rovigo
and Anagni.
Acquired on behalf of a fund
managed by LaSalle Investment
Management.
Netherlands
Trade Park portfolio, 54,795m2
,
two assets in Amsterdam
Southeast and Hoofdorp.
Sold on behalf of Citigroup.
Sweden
Industrial and office building,
29,000m2
, Jönköping.
Sold on behalf of Intersport.
Poland
Ozarow Business Centre,
35,300m2
, Ozarow near Warsaw.
Sold on behalf of the Trustee
and Creditors' Councils.
Russia
Logistics centre, 55,000m2
,
Dmitrovsky district, Moscow.
Acquired on behalf of Raven
Russia.
Hungary
Erdért portfolio, 8 assets
totalling 51,500m2
GLA
and 426,000m2
of land.
Acquired on behalf of
Guardian Managers.
“As industrial warehousing assets are developed
to more modern, complex and high-specification
criteria investors require specialist knowledge of
the sector and its characteristics, comparable to
that of offices and shopping centres.”
Karl Persson, Jones Lang LaSalle, Gothenburg
5. Jones Lang LaSalle European Industrial Capital Markets
incorporates industrial real estate investment specialists
in over 23 European countries. In the last 24 months
Jones Lang LaSalle has advised on over €5 billion of
industrial transactions.
Europe’s Logistics Hubs
Established Logistics Hubs
Developing Logistics Hubs
European Core Logistics Region
Logistics Regions
Emergent Manufacturing Regions
