Logistics yields in Europe's south hold firm; demand outstrips supply

Southern European cities are seeing some of the highest yields in logistics across the whole region as the segment keeps drawing investors, according to Savills.

In a report on the European market Savills data shows logistics investments in the first quarter of the year in Lisbon yielded at 6.25 percent, 5.15 percent in Madrid and at 4.75 percent in Milan. This compares with a yield of 3.7 percent in Germany’s top 6 and 4.25 percent in Rotterdam.

The report points out that there is not enough supply to meet demand and that yields in logistics are heading lower on a mix of falling vacancy rates and rising prices.

“A massive shift of investor interest to a market segment that historically has not captured more than 12% of the investment activity, causes a lot of competition. Yields are down to record low levels, with quality of location and strength of covenant driving pricing. Investor confidence is underpinned by the strong fundamentals of the sector,” it said.

In the broader real estate sector, Director of European Research, Eri Mitsostergiou, points out that investment activity in the first quarter of the year slowed considerably from the same period a year earlier.

The total volume invested in 19 European markets monitored reached 52.7 billion euros, 41 percent down from year-ago levels and 18 percent below the five-year average.

Germany was still the largest market despite the 52 percent year-on-year fall, and captured 30 percent of the total, followed by the UK (-34 percent YoY) at 25 percent. France’s share dropped just below 10 percent and annual volumes dropped by -37 percent YoY. Sweden (-37 percent YoY) accounted for 8 percent of the total and Denmark entered the top five for the first time with a share of 5 percent.

Smaller markets relying heavily on cross-border capital such as the Czech Republic, Portugal, Belgium and Luxembourg experienced the steepest falls (over 80 percent). In Ireland (107 percent) and Denmark (21 percent), market activity was higher than last year, driven by high activity in the residential market segments.