Economic backdrop: growing uncertainty but positives outweigh the negatives
Confidence in the European industrial market took a hit at the start of the year as economic uncertainty spiked and businesses continue to take stock of the consequences of an economic slowdown in China. Despite concern for exports and an increase in downside risks, the policy framework in Europe remains supportive and domestic demand will be reinvigorated by improvements in labour markets and consumer spending, while e-commerce has plenty of room for growth. Changes to Europe’s GDP composition - from exports to consumption - highlight the extent of this ongoing change across Europe. 

Occupational market: lack of modern space a key theme but rents responding differently; gradual return of speculative development
The strength of occupier activity remains variable by country/ location, but in general, demand for industrial space has bounced back. Take-up registered new post-crisis peaks in some countries. Combined with a general shortage of good quality space, rents are now rising in a number of markets - although this is far from being the norm. Speculative development is back on the agenda, although not at levels seen pre-crisis, and their distribution is uneven across markets. Build-to-suit continues to dominate the big-box segment, and the supply of smaller, multilet industrial facilities remains constrained with some developers seeing an opportunity in that space. 

Capital markets: high volumes and yield compression; positive outlook for capital values
Total European industrial volumes in 2015 failed to surpass 2014’s by a narrow margin, but continuing investor appetite for European industrial property is illustrated by wholesale yield compression. The weighted average prime industrial yield for all of Europe fell by 50bps in 2015 to 7.2%, with the equivalent figure for Western Europe (ex. UK) hovering around 6.5%. The UK markets leads the way with prime yields now at 5.25%.

Prime industrial capital values have continued to grow as yields have compressed. There is scope for values to grow further, as yield compression is expected across both mature and emerging markets alike. In the UK, where capital value growth has been slowing but remains robust, across-the-board rental growth will provide an additional boost to values and total returns. Across the rest of continent, rental recovery will remain piecemeal and confined to the best properties/pitches, with some growth possible for secondhand stock in good locations in Western European markets and the Nordics.

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