European Logistics & Industrial Investment market
Investment volumes have continued to fall in H1 2023 as investors await new pricing levels to stabilise. Following rapid decompression, yields have started to slow in their outward movement. Activity is starting to return as new product is being brought to market and as investor conviction in the sector remains strong.
Investment volumes have fallen significantly from their record high seen in 2022. The dramatic upswing in investor activity through 2021 and H1 2022 was fuelled by the exceptional occupier market conditions, including strong rental growth, as well as the relatively attractive return profile compared with other asset classes. As a result, investment volumes and capital values soared whilst prime investment yields compressed significantly: in major markets, prime yields typically fell by close to or more than 100bps between 2019 and Q1 2022.
However, with the softening economic sentiment and outward movement in interest rates and financing costs, activity has slowed dramatically as investors have been awaiting pricing to stabilise. As a result, investment volumes in H1 2023 have fallen by -63% compared with H1 2022. On a rolling four-quarter basis, industrial investment volumes for Europe were recorded at €37.7 billion at end Q2 2023, markedly down from the nearly €80 billion transacted in the year to Q1 2022 but are now broadly in line with the average annual volume in the pre-pandemic period.
Pricing has moved out sharply since Q1 2022 and some major markets have seen yield decompression in excess of 130bp to end Q2 2023. In the months following the end of Q2 2023, pricing has continued to move out, albeit in some markets at a slower rate of decompression than over the past twelve months.
Now, as we progress towards year end, markets and pricing are showing signs of stabilising and activity is once again restarting. More product is being brought to market and we expect volumes to start improving as many investors retain conviction in the sector with many securing or ringfencing capital specifically for deployment into logistics and industrial assets.