investment in Europe's industrial real estate sector increased by 13% in the third quarter.
According to Jones Lang LaSalle, European industrial investment volumes rebounded strongly in the third quarter, totaling €2.3 billion, up 13% year on year.
This comes after a sluggish second quarter, when volumes fell by 14%. As a result, the year-to-date estimate of €6.8 billion is 15% higher than the same timeframe the previous year, indicating continued strong investor demand for logistics and industrial properties. doha property
"We're seeing an increase in equity targeting new investment opportunities in the business, largely due to attractive income returns," says Chris Staveley, Director of Jones Lang LaSalle EMEA Capital Markets.
"The current transaction rates are likely underestimating the market's interest. However, continued tight commodity in the top-end market, combined with rising global financial tensions, is preventing even better results."
The big European markets of the United Kingdom, Germany, and France drove investment activity. All three saw significant growth during the period, accounting for 67 percent of total volume in Q3. As more product became available, activity in the UK, Europe's largest market, increased by 66%. However, investment amounts in the first three quarters of 2011, totaling €2.1 billion, were flat year over year, owing to a combination of small core product in the first half of the year and transaction completions postponed until the third quarter.
Industrial investment volumes in CEE and Russia have increased by 125 percent year to date compared to the same timeframe last year, indicating continued strong investor interest in a wider variety of markets across the country. Nonetheless, overall volumes are small, due to a lack of opportunities and a decreased willingness to take risks.
During the quarter, cross-border volumes remained stable, while domestic investors became marginally more aggressive, with a 52 percent share in Q3 as they began to use their home advantage. Nonetheless, foreign and US investors have exchanged assets worth €2.0 billion so far this year, which is five times more than the same timeframe last year. As a result, cross-border investments are still driving business demand, accounting for 60% of total volume so far this year.
"With the investor caution and minimal core industrial product across Europe," Chris Staveley tells the World Property Channel, "we now expect full year 2011 transaction volumes to hit between €9.0 and €9.5 billion, just slightly ahead of last year."
For the second quarter in a row, prime industrial yields have remained unchanged at 7.40 percent. As a result, annual compression in the third quarter slowed to 20bps. Over the quarter, yield deflation was seen in various Dutch markets (down 10bps) and prime London assets (down -25bps), while yields in Dublin pushed out 50bps due to a lack of investor appetite.
Due to a lack of continuing rental growth and yield compression, prime capital value growth slowed in Q3, falling to 0.6 percent from 1.1 percent in Q2, and year-over-year growth to 3.6 percent from 4.1 percent in Q2. Berlin (4.4 percent), Düsseldorf (3.8 percent), London (4.2 percent), Munich (5.0 percent), and Rotterdam (3.2 percent) saw the most capital value growth in the quarter, while Barcelona (-3.7 percent) and Dublin continued to contract (-8.7 percent ).
"In the fourth quarter and early 2012, we assume there is minimal room for more yield compression. As a result, pricing is likely to stay flat, with capital growth mainly guided by rental growth "Jones Lang LaSalle's Alexandra Tornow, Head of EMEA Logistics and Industrial Research, commented. "Only a few markets, namely historic core industrial Western European markets such as London, Paris, the main Dutch and German markets, and the Nordic markets, are likely to buck this trend, although with restricted overall development," she added.