AXA to target more than €1b of logistics deals in 2018

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AXA Investment Managers - Real Assets is beefing up its exposure to logistics, Laurent Jacquemin, head of European transactions at the group, told REFIRE at EXPO REAL.

‘We want to grow our logistics portfolio, notably in Germany,’ Jacquemin said. ‘It’s about the right location and right asset with the right tenants. So far this year, we have invested over €1b in logistics across Europe and we’d like to do a similar volume of deals next year.’

The group announced earlier this month that it had raised more than €1b for its CoRE Europe Fund since the fund was launched with €500m of commitments in March 2016. The pan-European open-ended real estate fund seeks to provide institutional investors with long-term stable income through the acquisition of core European real estate assets by capitalising on individual market dynamics and timing. In the long term, AXA IM - Real Assets aims to grow the fund into a flagship European open-ended fund.

AXA has already invested €830m of the capital raised, including the acquisition of a 1.2m sqm fully-let pan-European logistics portfolio from Gramercy for €1b, which completed in July. The majority of the 39 assets are located in Germany, France and the Netherlands, with an additional 10% in the UK and Poland. The assets are located in prime locations along major national and international transportation hubs or are in selected locations that are mission critical for their tenants. The portfolio boasts typical average lease lengths in excess of eight years. Logistics accounted for 86.5% of the total, while the balance of the portfolio is spread across retail, car dealership and office assets. Almost half of the high-specification logistics properties are over 50,000 sqm in size and largely occupied by a single tenant.

There have been other mega deals in the logistics space this year. In March, private equity behemoth Blackstone and pan European multi-let real estate asset manager M7 Real Estate Ltd acquitted a portfolio of logistics assets in Germany and the Netherlands via their joint venture Onyx from UK-based Hansteen Holdings for €1.3b. The purchase price is a premium of about 6% to the valuation at the end of 2016.

And interest in logistics has never been higher. There were €6.2b of deals in the first nine months of the year in Germany, almost double y-o-y, according to Colliers, giving logistics a 16% share of the market, behind offices (46%) and retail (20%).

‘Activity in the German industrial and logistics market has reached a new high and industrial and logistics assets are becoming increasingly attractive to many investors who were previously sceptical about this asset class,’ said Peter Kunz, head of industrial and logistics at Colliers in Germany. ‘Investor outlook is favorable when it comes to the long-term e-commerce trend, as more and more retailers are jumping on e-commerce bandwagon to be able to offer their merchandise online,’ he added.

Asian investors have accounted for 40% of the deal volume this year, driven largely by China Investment Corporation’s acquisition of Blackstone’s European logistics platform, Logicor, for more than €12b in June. (More than €2b of Logicor’s assets are in Germany.) Moreover, portfolio deals have been highly popular this year, accounting for 71% of logistics sales, up from 40% last year, according to Colliers.

However, as competition for logistics assets increases, investors are being pushed to take on more risk, according to Hubert Reck, head of industrial and logistics investment at Colliers: ‘The ongoing shortage of supply continues to push investors to take more risks when acquiring assets,’ he said. ‘Historically low interest rates and sustainable economic growth is keeping interest in German real estate high. The downside of this development is that investment opportunities are becoming scarce, leading to increased demand even outside the typical core markets and motivating investors to take higher risks.’

Asset availability in Germany’s top 7 logistics regions has begun to reach its limit and property developers are only able to bring a minimal number of new assets to the market due to the lack of sites designated for logistics, according to Reck, which, in turn, has led to yield compression. As a result, prime yields for logistics assets in Germany’s ‘Big 7’ ‘have fallen by 95 basis points to 4.7% over the last year, according to Colliers.

Yet interest shows no sign of waning, according to Kunz: ‘Logistics has overtaken other asset classes this year and is currently one of strongest asset classes on the market,’ he said. ‘More high-volume transactions have been announced for the next couple of months as well. The market could post a transaction volume of more than €8b by the year end.’