Prologis examines European industrial property market investment opportunities
Prologis has published an in-depth research report into the performance of the industrial property sector in Europe.
The paper, titled "Opportunities in the European Industrial Property Market", highlights the impact of cyclical factors such as the current deficit in Class-A space and supply-demand dynamics, as well as major structural trends such as the ongoing supply chain reconfiguration and the rise of e-commerce.
Key findings include:
• European industrial real estate values declined 21.9 per cent from the pre-crisis peak in 2007, and have subsequently only recovered by 1.3 per cent on average. Current values are attractive relative to replacement costs and the pattern of value recovery in the U.S. following the global financial crisis.
• Logistics real estate delivered 7.6 per cent in direct return over the last 10 years, some 200 and 240 basis points higher than the direct return component of office and retail respectively.
• Despite weak GDP growth in the EU—just 1.5 per cent per annum over the last 10 years—trade and supply reconfiguration are expected to drive strong demand for distribution space in Europe.
• The US market has more than four times the Class-A distribution stock relative to Europe, where Class-A logistics assets account for only 14 per cent of industrial stock. The European logistics property market is therefore relatively underdeveloped.
• E-commerce is increasing, requiring retailers to re-evaluate their distribution channels to support demand and expected growth. Every additional EUR1bn of online sales resulted in an average additional warehouse demand of approximately 72,000 square meters in the UK, Germany and France over the last five years.
Ali Nassiri, vice president, acquisitions and research, Prologis Europe, says: "Over the long term, the industrial property sector has proven to be a solid and defensive asset class, with an attractive risk-return profile to institutional investors. Industrial space is a key contributor to productivity enhancement, cost reduction, and overall supply chain strategy. The ongoing drive for greater operational and cost efficiency will benefit industrial real estate, fuelling the sector through its recovery in the near term and into the future."