European Industrial & Logistics Sector Outlook 2024

RESURGENCE ON THE HORIZON

STABILISED INVESTMENT PRICING

Pricing has moved out sharply since Q1 2022 and some major markets have seen yield decompression in excess of 130 bp to end Q2 2023. Encouragingly, in Q3 2023, prime yields in many markets have remained stable relative to Q2 2023, which is providing both vendors and buyers with confidence that prices agreed are a true and sustainable reflection of values. As a result, activity is starting to return: more product is entering the market, and we anticipate an improvement in volumes. In fact, in certain markets such as the UK and Germany, investment volumes in Q3 2023 have shown a quarter-on-quarter uplift, although volumes remain muted in other markets, including France and the Netherlands. We expect that, with pricing stabilisation, investment activity will start to recover more meaningfully as investors remain confident in the sector. Many have secured or earmarked capital specifically for investments in logistics and industrial assets, patiently awaiting the right time – and pricing levels – for deployment. The active capital currently in the market tends to be of value-add or opportunistic nature, with core capital likely reengaging in active acquisition strategies later in the cycle.

Investment volumes in 2023 have declined significantly from the record highs of 2022. By the end of Q1 2022, investment volume had peaked at just under €80 billion (four-quarter rolling total), compared to nearly €41 billion in 2019. This exceptional surge in investor activity during 2021 and early 2022 was propelled by extremely tight occupier market conditions, robust rental growth, and an attractive return profile compared to other asset classes. The overwhelming investor demand for a limited supply of investment products led to soaring capital values and compressed investment yields. In major markets, prime yields decreased by 100 basis points or more between 2019 and Q1 2022. However, with the slowdown of the economy and occupier activity, along with increases in interest rates and financing costs throughout 2022 and 2023, investment activity has significantly decelerated. Investors have been patiently awaiting pricing stabilisation. Industrial investment volumes for Europe were reported at just over €32 billion at the end of Q3 2023, a marked decrease from the nearly €80 billion transacted in the year leading up to Q1 2022 but only slightly behind the average annual volume in the pre-pandemic period.

"

We expect that, with pricing stabilisation, investment activity will start to recover more meaningfully as investors remain confident in the sector.

12 LOGISTICS & INDUSTRIAL OUTLOOK 2024

THE TIDE IS TURNING SWIFTER | 13