Our Market
Europe has been at the forefront of a new era in which global trade has had a staggering impact on the global distribution and logistics market. The opening of European borders has enabled companies to pursue regional or pan-European distribution networks as opposed to the former country-by-country approach. In addition, manufacturing has migrated towards Central and Eastern Europe where companies can benefit from lower labour costs and proximity to the major consumer markets of the West, thereby significantly reducing transportation costs.
The vast majority of global trade is transported by sea, with modern container shipping a key enabler of the broader trend towards globalisation due to the incredible cargo transport efficiencies it delivers. PEPR’s strong presence at five of the top 10 European ports is a key competitive advantage for the business and the customers it serves.
The outlook for the European economic recovery remains dominated by concerns over sovereign debt defaults within the Eurozone. As a result, Eurozone growth forecasts have been revised downwards to 1.7% for 2011 and 1.0% for 2012. Average GDP growth forecasts for 2012 of Europe’s largest economies (Germany, France, UK and Italy) stand at 0.9% (weighted). Central Europe, notably Poland, is expected to remain relatively more resilient next year.
Customer sentiment remains cautiously optimistic, with a focus on opportunities in emerging markets and mature Western European markets. Whilst there is recent evidence of more protracted decision making from customers in light of the economic uncertainty, occupiers continue to pursue opportunities to optimise supply chain efficiencies and are moving from older, obsolete warehouses to more modern space.
Prime headline rents remained broadly flat across Europe during the third quarter, with some rental growth apparent in larger supply constrained logistics hubs in Northern Europe. Lease incentives remained stable but are still high from a historic perspective.
Investment flows into Europe’s logistics property markets slowed during the third quarter given the limited availability of prime, long-leased assets in core markets coupled with the uncertain economic outlook. Prime yields in most markets have remained stable in the third quarter, with an average NOI yield of 7.53% within the EU-15 according to CBRE. Northern Europe remains the main focus of investor interest, but there is growing appetite for opportunities in Central Europe.
