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Investment Market Update

Europe Logistics H1 2014


Momentum to continue, despite record volume

31 July 2014
Contents
Economic Overview

Investment Market

Purchaser type

Prime Yields

Author
Magali Marton
Head of CEMEA Research
+ 33 (0)1 4964 4954
magali.marton@dtz.com

Contacts
Fergus Hicks
Global Head of Forecasting
+44 (0)20 3296 2307
fergus.hicks@dtz.com
Nigel Almond
Head of Strategy Research
+44 (0)20 3296 2328
nigel.almond@dtz.com
Hans Vrensen
Global Head of Research
+ 44 (0)20 3296 2159
hans.vrensen@dtz.com

EUR9bn of European logistics investment volume was recorded in the first half
of 2014. This reflects a 25% increase versus H1 2013. It sets a new record since
the crisis in 2007. For the first time, logistics sector recorded stronger growth
than the 23% all property investment volumes during the 6 first months.
Portfolio acquisitions continued to boost logistics activity, accounting for
EUR3.4bn in H1 2014. UK activity was dynamic as usual (EUR3.2bn) and
Germany (EUR1.8bn). But, volumes were also surprisingly strong in the Nordics
(EUR1.4bn), driven by a strong Q2 volume in Finland (EUR1.1bn).
Fund managers continue to dominate on the buy side. The top five investors
represent more than 25% of the total invested volume recorded in H1 2014.
This ranking confirms the come-back of traditional players, like Segro and
Prologis on the buy side. But, it also welcomes Blackstone in top position with
EUR963m of acquisitions recorded over the last 6 months.
Strong competition between investors has started to drive prime yields down
in some markets on the continent, including in the Netherlands and Poland.
But, elsewhere yields have remained stable so far. The European logistics
market continues to offer a wide range of prime yields, from below 6% in the
UK to between 7 and 8% across most of the rest of Europe. However, there are
still some markets with yields standing above 9%, such as in Budapest and the
Baltic markets. Our forecasts suggest a mixed picture going forward with an
equal number of markets forecasted to have yield compression and widening.
This strong performance on the investment side in H1 2014 is encouraging for
the rest of the year. Strong appetite from cross-border investors should lead to
invest more in the industrial sector, especially, on the back of current attractive
pricing (see our Fair Value Index Q2 2014 Europe report). The economic
recovery is still in early stages in much of Europe. But, the main indicators will
come back to positive territory, which should support a stronger occupiers
demand going forward. In this context, we expect logistics investment volumes
to maintain the same strong growth momentum with a further broadening
across countries.
Figure 1

Investment volume in logistics-industrial assets (EUR bn)


6

2011
5

2012

2013

2014

4
3
2
1
0

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
Source: DTZ Research

DTZ Research

Europe Logistics H1 2014


Economic Overview
Sluggish Europe to pick up soon
Europe is lagging behind Asia, the US and the World average
in terms of growth in 2013 and will continue to do so for the
coming years. However, Europe is getting out of recession,
dragged by better-than-expected growth results especially
in the UK. As a result, Europes GDP rose by an annualised
rate of 0.1 % in 2013, and should grow by 1.5% in 2014
(Figure 2). Market recovery is less rapid and pronounced
than expected in the US with 1.5% growth for 2014 but
2.8% on average now forecasted over the 5 next years. On a
global level, the recovery is led by Asia Pacific where GDP
will record strong rise (4.6% per annum) over the same
period.
In Europe, the CEE countries continue to lead the recovery
with an outperforming GDP growth (2.9%) anticipated from
2014 to 2014. Thanks to a stronger than expected rebound
in 2013 (3%), the UK will rank at second place in terms of
most dynamic economy across Europe with a 2.7% average
GDP growth over the 5 next years. Nordics will also enjoy
brighter economic context with 2.1% GDP growth, above
the EU average (1.7%). Once again France will mark its
difference with GDP growth standing at 1.1% per annum
below the European average.
Trade is expected to recover
Year 2012 saw imports and exports declining in various
proportions in the Euro area, with sharp decline recorded in
Q4 (Figure 4). Since then, exports and imports in the Euro
area have been quite volatile but ended the year 2013 on a
modest +0.2% growth for imports and +0.5% for exports.
The two first quarters of 2014 suggest a rebound in import
activity with an average of 0.8% growth while exports
rebounded at 1% in Q2 after a muted Q1.
Based on preliminary data the volume of world trade
decreased by 0.6% in May from previous month, following a
1.6% increase in April. According to the preliminary figures,
global import volume and global export volume moved in
opposite directions, making the outcomes somewhat hard
to interpret. In most advanced economies both import and
export volumes declined, as did import volume in emerging
economies.

Figure 2

GDP growth 2013-2014, forecast 2014-2018


5%

5%

3%

3%

1%

1%

-1%

-1%

2013

2014

2014-18 average

Source: Oxford Economics June 2014

Figure 3

GDP growth in selected regions, annual growth in %


4
3
2
1

0
-1
CEE

UK

Nordics

2009-2013

Germany Eurozone

France

2014-2018

Source: Oxford Economics June 2014

Figure 4

Export and imports in the Euro area, quarterly change %


1,5%
1,0%

0,5%
0,0%
-0,5%
-1,0%
-1,5%

-2,0%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2012 2012 2012 2012 2013 2013 2013 2013 2014 2014
Imports

Exports

Source: CPB World Trade Monitor

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Investment Market Update

Europe Logistics H1 2014

Positive trend for the industrial production


During the last 5 years, industrial production growth rates in
Europe were negative for a majority of countries, except for
CEE, which recorded a 1.5% rise over the same period.
Going forward forecasts for 2014-2018 indicate brighter
future for the industrial sector with growth rate coming
back to positive territory for the Eurozone with a 2.1%
increase anticipated (Figure 5).

Figure 5

Industrial production in selected countries, annual growth


in %
6
4
2

0
-2

CEE and Nordics countries will lead the recovery with


industrial production to grow by 4.4% and 2.3% per annum
from 2014 to 2018 respectively. On the other side of the
scale, the 3 core countries will increase by 1.5% (France) to
2.0% (Germany) over the same period.

Growth of consumer spending, with outperformance in


CEE, UK and Nordics
Consumer spending forecasts reflect the economic recovery
anticipated in Europe and therefore improvement of the
consumer confidence. In this context, consumer spending is
forecast to grow by 1.3% per annum from 2014 to 2018,
reversing the -0.4% decline recorded between 2009 and
2013. CEE countries, the UK and the Nordics will outperform
the regional average with growth above 2% over the same
period (Figure 6).
The lagging recovery of the French economy will impact the
consumer spending with a modest 1.3% growth now
anticipated. This contrast sharply with the performance
expected in Germany (1.6%) or even more in the UK (2.4%).

www.dtz.com

-4
CEE

Nordics Eurozone Germany


2009-2013 2014-2018

UK

France

Source: Oxford Economics June 2014

Figure 6

Consumer spending in selected European countries,


annual growth in %
4
3
2

1
0
-1
CEE

UK

Nordics
2009-2013

Germany Eurozone
2014-2018

France

Source: Oxford Economics June 2014

Investment Market Update

Europe Logistics H1 2014


Investment Market
25% growth in volume for the industrial sector
After a strong year in 2013 (EUR14.8bn), the industrial &
logistics investment market has kept its growth momentum
in H1 2014 with volume reaching EUR9bn up from
EUR7.2bn recorded at the same period last year (Figure 7).
Volume grew sharply (+25% y-o-y) and posted its strongest
half year since H1 2007 (EUR9.6bn). In relative terms the
logistics market is on a long running trend of market share
increase. Logistics transactions accounted for 12.6% of the
total volume of H1 2014, beating not only the previous
record in H1 2013 (12.3%) but also the long term market
share average (8.2% recorded from 2002 to 2013).
Acquisitions of logistics assets portfolios have been
numerous since the beginning of the year, accounting for a
total volume of EUR3.4bn, mainly located in the UK,
Germany, France and more surprising in Finland.

Figure 7
European investment activity in logistics EURbn
20

14%
12%
10%
8%
6%
4%
2%
0%

15
10
5
0

Industrial

Share of industrial

Source: DTZ Research

Figure 8

Logistics investment volume in Europe by country EURbn


100%
75%

The 3 core countries capture 70% of investment volume


50%

As in 2013, the market shares of logistics investment


volume by country are consistent in H1 2014 with the trend
observed during the past few years. The UK registered as
usual the largest market share with 35% of the volume, or
EUR3.2bn, while Germany and France accounted for a
further 21% and 12% market share (Figure 9).
Germany continued to enjoy strong activity in the sector
with EUR1.8bn already invested. This is encouraging for the
rest of the year of 2014, which could end with a new record
level.
More surprising is the growing activity recorded by the
Nordics countries which are up to EUR1.4bn of transactions
recorded in H1 2014. They accounted for 16% of the total
volume, up from 15% in 2013. This very good performance
is mainly linked to a strong activity recorded in Finland
(EUR1.1bn out of which 2 portfolios sales for price above
EUR200m each) while volume declined in Sweden and
remained stable y-o-y in Norway.
CEE has contributed modestly to the European volume with
EUR384m of acquisitions in H1 2014 out of which EUR322m
invested in the Polish market. In the other CEE countries
(Czech Republic, Hungary and Romania) investment activity
in industrial-logistics sector remained subdued.

25%

0%

United Kingdom France


Benelux
CEE

Germany
Peripheral

Nordics
Rest of Europe

Source: DTZ Research

Figure 9

Logistics investment volume in H1 2014


United Kingdom

0%
4% 3%

France

9%
35%

Nordics

EUR9bn

16%

Germany
Benelux
CEE

21%

12%

Peripheral

Rest of Europe
Source: DTZ Research

Interestingly, the industrial sector has not yet seen the huge
capital flows recorded in the Peripheral countries. There
investors have mainly focused on retail and office, staying
for the moment away from the industrial sector.

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Investment Market Update

Europe Logistics H1 2014

Map 1

Investment volume in industrial in H1 2013/H1 2014

Total investment
(EUR m)
1 600

H1 2013
H1 2014
Finland
Norway
Sweden
Estonia
Latvia
Denmark
Russia

Lithuania

Ireland

United Kingdom
Netherlands
Belgium

Poland
Germany

Luxembourg

France

Czech Republic

Ukraine

Hungary

Switzerland

Romania

Italy
Spain
Turkey

Source: DTZ Research, ESRI

Source : DTZ Research, ESRI

www.dtz.com

Investment Market Update

Europe Logistics H1 2014


Purchaser type
Strong buy side activity from private equity funds
Private equity funds continued to dominate in H1 2014 the
logistics investment market. They accounted for 49% of the
total investment volume recorded since the beginning of
the year. The quoted sector has also been more active on
the buy side in H1 2014 accounting for EUR1.6bn invested
rd
in six months i.e. 18% of market share. Ranked in the 3
position are the private property companies whose
investments in the first half of the year (EUR1.6bn) have
already equal the full year performance in 2013 Most of
their activity was focused on the UK market. Sovereign
wealth funds ranged in the most active buyers in 2013 (with
EUR1.8bn of acquisitions) have been quiet in H1 2014.

Figure 10

Investment volume by purchaser type, H1 2014, EURbn


3%
5%

4%

Private Equity Funds

3%
1%

Quoted Sector
Private Property Company
49%

17%

Other
Corporate
Institution

18%

Private Investor
Public Sector

Source: DTZ Research

The top 5 investors represent more than 25% of the total


invested volume in H1 2014, and the list is rather peculiar
(Table 1). BLACKSTONE dominates this ranking with
EUR963 acquisition since the beginning of the year.
They have been active, mainly through portfolios
acquisitions in a wide range of countries which include
France, Germany, Italy, Netherlands, UK and Poland.
Amongst the traditional players on the market such as
PROLOGIS and SEGRO, TRITAX have made their entrance in
the top 5 investors with some mega-deals done in the UK
exclusively.

Prime Yields
Pricing under increasing pressure in CEE

Table 1

Top 5 Investors in H1 2014


Invested volume
(EUR million)

Investor

Nationality

Type

Blackstone

963

International Private Equity


Fund

SEGRO

503

UK

Listed Fund

Tritax

288

UK

Listed Fund

Prologis

274

US

Listed Fund

Legal &
General

230

UK

Listed Fund

Source: DTZ Research

Prime logistics yields reported at mid-2014 have been


broadly stable except in a few markets such Amsterdam and
Warsaw where strong investors appetite and increasing
competition have continued to put upward pressure on
pricing and had reduced yields between 25 and 35bps
(Figure 11).
More broadly, European industrial market continues to
offer a wide range of yields with lowest yields at 5.50% in
London Heathrow. Yields between 7% and 8% can be found
in the majority of the European markets (14 markets out of
30 covered in our analysis) whilst Baltic countries, Hungary
and Romania still offer the highest ones, standing above 9%.
Going forward, our forecasts suggest a balanced situation
between 15 markets where yields are expected to move out
by 10 to 75 bps, and, an equal number of markets where
yields compression will continue over the next 4 years (Map
2). This latter category includes markets such as the
Peripheral and CEE ones.

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Figure 11

Logistics prime yields in Europe, %


9
8
7
6
5
4
3

Amsterdam
London (Heathrow)
Paris

Brussels
Munich
Stockholm

Source: DTZ Research

Investment Market Update

Europe Logistics H1 2014

Map 2

Prime logistics yields in Europe (Q2 1014) and expected yields shifts 2014-2018
Yield shift (2013-2018)
Prime yield
5,5%

-75 to -26 bps

5,5% - 6,75%

-25 to 25 bps
26 to 150 bps

6,75% - 7,75%

7,75% - 9%
Helsinki

Oslo
9% - 10,25%

Tallinn

Gothenburg
Glasgow

Riga

Copenhagen

Manchester
Amsterdam

Birmingham

Vilnius
Hamburg

Dublin

Rotterdam
Antwerp

London (Heathrow)

Berlin

Brussels

Warsaw
Prague

Frankfurt
Paris (IDF)

Budapest
Lyon

Milan
Bucharest

Marseille
Rome
Barcelona
Madrid

Source: DTZ Research, ESRI

Source : DTZ Research, ESRI

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Investment Market Update

Europe Logistics H1 2014

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DTZ Research Contacts
Global Head of Research

Head of CEMEA Research

Hans Vrensen

Magali Marton

Phone: +44 (0)20 3296 2159

Phone: +33 (0)1 49 64 49 54

Email: hans.vrensen@dtz.com

Email: magali.marton@dtz.com

Global Head of Forecasting

Head of Strategy Research

Fergus Hicks

Nigel Almond

Phone: +44 (0)20 3296 2307

Phone: +44 (0)20 3296 2328

Email: fergus.hicks@dtz.com

Email: nigel.almond@dtz.com

DTZ Business Contacts


Chief Executive, EMEA
John Forrester
Phone: +44 (0)20 3296 2002
Email: john.forrester@dtz.com
International Investment
Paul Boursican
Phone: +44 (0)20 3296 2019
Email: paul.boursican@dtz.com
International Investment
Michael Cutteridge
Phone: +44 (0)20 3296 3022
Email: michael.cutteridge@dtz.com
Head of EMEA Logistics
Robert Hall
Phone: +44 (0)20 3296 3100
Email: robert.a.hall@dtz.com

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DTZ July 2014

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