Industrial and Logistics sector takes record share of the European property investment in Q1 2013

Industrial and logistics investment was responsible for a record 13% share of overall European commercial real estate investment in Q1 2013, well above the long-term average of 8%, according to the latest data from CBRE.

The €3.7 billion transacted in Q1 2013 also constitutes the highest level since the global financial crisis, and is 28% above the long-term quarterly average of €2.9 billion. The strong quarter of activity adds further weight to the latest CBRE Real Estate Investor Intentions Survey that highlighted logistics as the second most sought after asset class in 2013 behind offices.

The UK, Germany and France were the three most active markets with €2.27 billion transacted between them, making up over 60% of the European market this quarter. However, the Central and Eastern European region, notably Poland and Russia, which considering the size of its economy and population, is dramatically undersupplied with quality logistics, also saw high levels of activity.

There are number of factors indicating that the European industrial and logistics sector is undergoing a structural shift and becoming an established institutional investment class alongside offices and shopping centres.

The strong quarter was heavily influenced by the €1.2 billion transaction in which Norges Bank Investment Management (NBIM) bought a 50% stake in Prologis’ European portfolio, and is set to make further acquisitions in the sector through the joint venture vehicle. This transaction is not only significant because of its size, but also its structure and the type of buyer that it involves – namely a sovereign wealth fund.

Iryna Pylypchuk: “Until now sovereign wealth funds have largely focused on offices and shopping centres when investing in European real estate. NBIM is the first sovereign wealth fund to make such a substantial direct investment in the industrial and logistics sector in Europe. It is a particularly notable example of an on-going trend, with many institutions, such as pension funds and insurance companies, growing their allocation to the sector - showcasing strong belief in the strategic importance of the sector going forward.”

James Markby: “Quality industrial and logistics assets are perfectly positioned to attract investor interest in the current economic climate. For a number of years now, there has been very limited new development, which will lead to an even tighter supply situation than we are seeing today. This provides the potential for rental growth in strategic locations, as well as yield compression – as we believe that the sector is still broadly underpriced and will see further structural shift in yields as it becomes a mainstream choice for institutions.”

Markby: “Trends in e-commerce continue to drive changes in the profile of the logistics sector, which is set to play an increasingly important role in the world of retail going forward. This, combined with the defensive characteristics of core logistics assets, is expected to start feeding into investment transactions in 2013 and in the mid-term.”