Occupier demand for European Distribution Warehousing remained buoyant during H1 2008 though investment activity was down 38% year on year to €4.5bn, according to Jones Lang LaSalle’s latest European Logistics Report, Trends and Prospects, soon to be released.

Occupier demand in the European logistics sector in H1 2008 was, up 10% on the same period of last year and just 6% short of the record H2 2007 volume.  Positive trends over the six months of the year including globalization, expansion into the Central and Eastern European (CEE) markets, the changing structure of warehousing functions and changing retail patterns, which are leading to new trends in the distribution of goods, all contributed to continued strong occupier demand across the region.

Rainer Koepke, Head of Industrial and Logistics Agency Germany at Jones Lang LaSalle commented: “Despite the positive take-up numbers, growth in the occupier market in H1 2008 was not equally spread across the region and signs of slowing activity has already become evident in some locations. Slowing economic growth is leading to deteriorating market sentiment and increasing uncertainty amongst occupiers, and we are seeing demand increasingly being driven by the need to reduce logistics costs.  Subsequently we expect occupier activity to slow over the second half of the year and anticipate final full year take-up volumes to be lower than 2007.”

Alexandra Tornow, Head of European Industrial Research at Jones Lang LaSalle added:  “In the current market conditions the majority of developers will now only start on a pre-let basis.  Speculative construction will remain limited to those markets where persistent strong occupier activity is expected, in particular in the CEE. In Western Europe, Germany is experiencing some speculative development because of recent tight supply levels and strong demand.”

Total direct investment in warehousing property, which stood at €4.5bn over H1 2008, was down by 38% on the same period last year, but less prominent than the 44% decline recorded across investment in all commercial property sectors.  During H1 2008, Germany and Spain achieved increasing investment volumes, along with some smaller markets such as Finland and Italy.

For the fist time, the UK, which recorded €940m of industrial investment activity over H1 2008, was knocked off the top spot as the most active European industrial investment market, as Germany took first place achieving €1.1bn of investment activity during the first half of the year. The third highest volume was recorded in Spain with just under €600m, nearly three times more than one year ago and already exceeding the highest annual volume ever recorded for the country.

Chris Staveley, Head of the Pan European Capital Markets team at Jones Lang LaSalle said: “With solid market fundamentals and less volatile performance, we predict that investment appetite for this increasingly important real estate investment sector will remain.”

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