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Leasing activity increased on the quarter, but was down on the strong numbers recorded in 2011. Occupiers are continuing to consider all possible solutions when it comes to leasing decisions. Supply constraints in some core markets are forcing occupiers to move into more peripheral space, but generally the preference is for better quality space for operational efficiency reasons.fm
Rents remained stable over the quarter, but are down on year ago levels. The relative lack of prime space is underpinning rental stability in many markets, but there is continued divergence between Southern Europe and countries in the West and North. Rental growth was evident in Russia, Germany and the Nordics.
Investment – Transaction volumes improved quarter on quarter in Q4, and the total for the year was marginally up on 2011. The UK continued to dominate the market in this sector, followed by activity in Germany, France and CEE. The majority of investors sought core assets in cities with stronger economic prospects.
Prime rents were unchanged in the majority of markets in Q4. However, London, Paris and Berlin, three of Europe’s top retail and tourist destinations, all saw significant rental growth, with increases of 15-20% in the year as a whole. This was due to the limited availability of prime space and significant demand from international retailers for the best units. In contrast, vacancy rates are rising in secondary locations and in most of these markets rents are falling.
Consumers are facing the challenges of high unemployment, the threat of further job losses and austerity measures, creating an uncertain economic environment. As a result, confidence levels remain well below long term average levels in most markets. Consumer sentiment did improve slightly in some markets, most notably in Ireland, but the overall EU indicator fell marginally, by 0.1 point, in December 2012.
Retail sales in EU-27 declined over the important Christmas period, in line with retailer expectations, but only in Spain and Portugal were these declines significant. A number of retailer failed across Europe as a result of the tough trading conditions, but there were still winners. Sales grew strongly in Russia, value and luxury retailers performed well and some multichannel retailers reported excellent growth. In 2013, retail sales are forecast to recover slightly, resulting in flat growth for the year.
Offices were the best performing commercial real estate sector in Q4 2012
Across the sectors measured by CBRE, offices recorded a fall of just -0.5% in capital value, with positive performance in France, UK and the Nordics.
European capital values remained broadly stable, registering only a marginal decline of 0.8%. However, this does bring CBRE’s pan-European index to its lowest point since Q3 2009.
France and Germany saw values dip marginally over the quarter, (-0.2% and -0.1% respectively) both resulting in an annual decline of 0.5%.
CEE saw capital values decline by 3.9% and 2.2% in Q4 alone. The office sector, which has a significant development pipeline, weighted this result down, including in Poland (the region’s best performing country) where capital values fell in 2012.
Southern Europe and Ireland saw a decline of 4.0% in Q4 and 12.1% over the year, the result of weak economic sentiment and low levels of investment liquidity.
The significant revaluation of assets in this region, particularly across Spain, Portugal and Ireland, given the scale of the repricing, could come to represent good buying opportunities.
The final quarter of 2012 recorded the highest level of take-up of the year, driven by an upturn in confidence in a number of key Western European markets. However in southern Europe and fringe CEE the markets continued to be characterised by a lack of large deals and high renegotiation rates.
Overall vacancy rates generally remained flat, however this hides significant variations both in terms of the quality and location of available space.
Rental levels followed the same pattern as the first nine months of the year, with prime rental growth restricted to the best performing markets and further declines recorded in some of the southern European economies.
The development cycle reached its cyclical low in 2012 but is forecast to increase sharply in 2013-14 however this is heavily focused in a few key cities. Outside these locations the speculative pipeline remains low, and occupiers requiring prime existing space will have limited options.
Western Europe surprises on the upside in Q4 2012, following particularly strong activity in Germany and Norway.
Interest seems to be returning to secondary assets, as US private equity firms chase a wide range of property types in Germany.
Despite relative underperformance, there are signs of activity in Southern Europe, including some of the first investments on the continent by Latin American investors in Portugal and Spain.
Take-up increases in the final quarter due to upturn in some key markets, but the total for the year remains lower than 2010 and 2011.
Overall vacancy rates largely unchanged over the quarter. Polarisation between prime and secondary space, and central and peripheral locations, becoming accentuated.
Limited stimulus for rental growth in 2013. However, shortage of prime stock could trigger growth in the stronger markets if confidence and demand continue to improve.
The real estate demands of logistics for online retailing differ from traditional store-based retailing in various ways including labour requirements, proximity to multiple delivery destinations, process capability and integration with parcel delivery networks.
Online retailing creates a need for logistics networks and buildings to accommodate a different and more fluid set of demands. Supply chains may take a variety of forms due to multiple destination points.
Customer demands for a higher quality “delivery experience” are driving change and are a major differentiator for retailers. This raises the need for highly-flexible networks including smaller delivery depots and cross-dock facilities close to major population centres. .
This pivotal point in the relationship between retailing and logistics in Europe will offer significant opportunities to those able to respond to occupiers’ highly dynamic requirements in this fast-maturing sector.
EMEA Industrial & Logistics MarketView Q4 2012
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