German logistics investments continue to be very popular among both German and international investors. According to real estate consulting firm Colliers International, logistics investments generated a transaction volume of more than €2.1 bn in H1 2016, up 45% yoy and reflecting a new all-time mid-year high on the German investment market for industrial and logistics properties.
Peter Kunz FRICS, Head of Industrial & Logistics at Colliers International Germany, says, “Similar to the start of the year, we once again experienced a considerable increase in total commercial real estate investments. In the past few years, this segment accounted for an average share of 6% in total transaction volume with the current share twice as high. This trend shows that there continues to be strong potential in the market for industrial and logistics properties and that investor interest in industrial and logistics assets remains high. Although the supply of attractive core assets is very limited, more than €1.2 bn were invested in Q2. As a result, investors are increasingly turning to higher-risk properties as well as to stock buildings and assets located outside of German investment hubs such as Munich, Hamburg and the Rhine-Main region.”
Drop in portfolio deal share
Whereas only a small share in transaction volume was attributed to portfolio deals in Q1, their share had increased to 44% (approx. €945m) at mid-year.
However, previous year results of almost 63% could not be matched and single deals dominated once again. Major portfolio deals included Goodman’s sale of its pan-European portfolio featuring one French and eight German logistics assets with a total rental area of almost half a million square meters to real estate fund manager Gramercy Europe. Goodman also sold additional logistics properties in Q2, including 12 logistics properties in Germany, Spain and the Benelux countries purchased by Logicor, US investor Blackstone’s European logistics platform. Six of the properties encompassing a total area of 362,000m² are located in Germany with others in the logistics regions Berlin and Cologne.
The largest single deals included Eckpfeiler and Büschl’s acquisition of Kirschgelände to the northwest of Munich, featuring around 120,000m².
Investors rethink strategy because of Brexit
International buyers such as Gramercy Europe, Dutch investor Geneba and France-based AEW Europe were very active on the German industrial and logistics property market, investing just under €947 m, a 45% share in total transaction volume. Although this reflects a yoy drop in foreign investor activity of almost 24%, they were more active than in Q1 (21%).
Hubert Reck, Head of Industrial & Logistics Investment at Colliers International Germany, says, “Germany’s stable economic situation and the country’s position as the European logistics market’s driving force are excellent conditions for foreign investors looking to make secure investments. However, both German and international investors are starting to rethink their investment strategies as a result of the UK’s plan to leave the EU. This decision could cause numerous investors from the US and Asia who previously invested in the UK to shift their focus towards Germany instead, further boosting the German logistics property market. It is not yet entirely clear what impact Brexit will actually have on the real estate market and how this will affect buyers.”
Asset and fund manager activity remains strong
Asset and fund managers such as Gramercy Europe, Logicor and Dutch investor Geneba Properties N.V., who purchased eight properties in H1 alone, continue to be among the most active buyer groups. This also includes the acquisition of Siemens Areal in Mülheim an der Ruhr for around €50 m in Q2. Asset and fund managers invested more than €1 bn in H1, accounting for more than half of total transaction volume, followed at a considerable distance by project developers/development companies (€330 m) and open-ended real estate funds/special funds (€225 m). Among the most active project developers was Aurelis Real Estate, also purchasing eight properties in the past few months including three business parks in North Rhine-Westphalia.
Project developers were also very active sell side, generating a market share of around 45% (€967 m) in H1. Among others, Germany-based logistics property development company Ixocon sold a logistics center located in Hamburg in the direct vicinity of the Airbus site in Q2. The property encompasses a total lettable area of just under 17,000m² and was purchased by AEW Europe for one of its logistics funds.
High demand results in Germany-wide yield compression
“Due to ongoing limited supply of class A properties, many investors are prepared to dig deeper into their pockets in order to assert themselves against other potential investors and land the deal. This is causing yields to decrease throughout Germany as well as yield convergence in the Big 7 investment hubs. At the moment there is hardly a difference between yields for properties in Munich and Hamburg. Instead, criteria such as property age and lease conditions are playing a significant role. As a result, we are currently seeing prime gross yields averaging at 5.56% for the latest generation of logistics properties with high-quality fitout and long lease terms in the major investment hubs such as Munich, Frankfurt and Hamburg. Outside the major investment hubs but in important logistics
regions such as Bremen, Leipzig, Kassel and Nuremberg, logistics properties with similar criteria are achieving prime yields of up to 5.85%, a multiple of more than 17x the purchase price. Investor interest in light-industrial properties and business parks has also increased considerably. Purchase price multipliers of between 14x and 16x have been recorded for prime properties in the major investment hubs in this segment,” says Hubert Reck.
Outlook: High demand for new properties
“The investment market for industrial and logistics properties is currently experiencing a favorable trend; however, there is still a lack of project developments and therefore of new, interesting products for investors looking to make secure investments in Germany. The upcoming Brexit is also forcing numerous foreign investors to redirect their investments, which is likely to benefit Germany as a crisis-resistant nation. However, it remains to be seen what impact Brexit will have on the economy and politics. We continue to be optimistic about upcoming developments on the industrial and logistics property market and are expecting several large-volume transactions to be carried out in H2 with satisfactory annual results,” Hubert Kunz concludes.
