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Industrial and Logistics Snapshot: UK and the Baltics leading prime rental growth

Prime rental values in the majority of locations (34 out of 52) remained unchanged in H1 2014, prolonging a similar trend witnessed at the end of 2013. These include the main Southern European markets, like Lisbon and Madrid, where prime logistics rents have remained stable for the last 18 months.
Modest growth was recorded in Dublin and major UK logistics markets such as London Heathrow, West Midlands (Birmingham) and North West (Manchester) amid recovering demand and decreasing availability. Similarly, in Germany, high demand combined with scarce supply pushed up prime logistics rents in Munich and Stuttgart. Also a few Eastern European markets saw growth in prime logistics rents: Tallinn, Vilnius, Bratislava and Brno. Minsk recorded the most significant increase (+45%) among all the markets mainly due to lack of supply.

High vacancy levels and lower demand put further downward pressure on prime logistics rents in Hungary. The very high volume of space under construction in the Moscow region had an impact on rents, which experienced a small decline, and a further correction is expected. Declines were also seen in Hamburg, Amsterdam, Vienna and Athens.

European logistics occupiers market will continue to be characterized by high demand and low availability of high quality space. Further increase in prime logistics rents is expected in London, Birmingham, Dublin, Stuttgart and Vilnius; while declines might be observed in major Russian markets, Moscow and St Petersburg; as well as in Athens and Belgrade.

The prime yields in the first half of 2014 remained widely flat (no change in 33 out of 53 markets) with compression seen in 12 locations and weakening in only eight markets.

In Germany, which in Q1 saw the highest volume of logistics investment transactions ever recorded, the investors’ activity in Q2 returned to normal. Frankfurt, the most expensive location, saw yield compression (-30 bps), as did Stuttgart (-20 bps), while other locations remained relatively stable.

Amid increased interest from investors, the core Central and Eastern European distribution markets of Bratislava (-50 bps), Prague (-25 bps) and Brno (-30 bps) saw strengthening of prime yields. Also, as the logistics sector has become more attractive in Sweden, the major logistics markets, Gothenburg and Stockholm, also experienced compression of prime yields (-25 bps each).

Looking forward, current trends are likely to continue and investors’ interest in logistics properties is to remain high, in particular in the major logistics hubs, in both Western and Eastern Europe. We might also see increasing interest in peripheral markets. Further prime yields compression is expected in Ireland, UK and Czech Republic and Poland.