ProLogis chief predicts growth but UK still sluggish

THE chief executive of ProLogis European Properties has said demand across the continent remains relatively strong with customer confidence levels improving.

However, Peter Cassells said the UK logistics sector is still feeling the effects of the Government’s austerity measures.

The firm, which has major sites throughout the West Midlands, said predictions of GDP growth of between 1.5% and 2% suggested an encouraging picture for Europe, despite concerns about sovereign debt levels and the disruption to supply chains in the aftermath of the Japanese earthquake and tsunami.

“Overall, the steady recovery in the European logistics market continues,” said Mr Cassells in his statement to the firm’s AGM today.

“However, there is continued evidence of varying rates of recovery across Europe, with Germany, France and Central Europe benefitting more from the global recovery while the UK is still feeling the impact of its austerity measures.”

He said on the occupier side, demand remained relatively strong and customer confidence continued to improve.

“However, activity may fluctuate as the result of a number of factors: firstly, the pent-up demand from projects that were temporarily shelved during the crisis may have been largely satisfied in the latter part of 2010; inventory restocking after the downturn could have worked its way through the system; GDP growth rates have slowed slightly since the rebound of last year; and finally, an absence of alternative available modern supply may temper leasing volumes in some markets,” he added in his statement.

Nevertheless, he said shareholders should not lose sight of the fact leasing volumes had recovered to a level close to their long term average and the flight to quality in terms of modern, well located buildings was set to continue.

New supply remains limited to build-to-suit projects, he said, with a small amount of speculative development.

“As a result, market values and rental levels are expected to remain flat in the near term with modest rental growth in prime markets expected in the latter part of 2011,” the statement continued.

“The recovery of the European logistics investment market remains on track, with sustained investor interest in the sector, although transaction volumes are being held back somewhat by a lack of available product and a continued concentration around the prime end of the sector. As a result, the cap rate compression seen at the beginning of 2011 has decelerated and overall, market yields are back in line with the 10 year average.”

Mr Cassells said PEPR’s future priorities were to continue driving cash flow from its portfolio through proactive asset management, exemplary customer service and sustained high levels of leasing activity.

In addition, where excess supply of space has been absorbed, he said the firm would look to push for higher rents. Based on the firm’s success on the leasing front and the resultant cash flow, Mr Cassells said PEPR would also further deleverage its balance sheet and continue on press for a return to an investment grade rating.