Fund launch, sales, highlight fresh interest in logistics sector
Cross-border European real estate investment in the logistics sector has risen by a whopping 22% in the first six months of this year, and the heightened interest in the sector is set to be reflected in a number of logistics-oriented discussions and presentations at the upcoming Expo Real in Munich. September also saw a number of significant logistics property transactions involving German companies.
A new study by property advisor Jones Lang LaSalle highlights the changing shape of logistics development in Europe’s major markets over the past few years, with the trend now very much more ‘build-to-suit’ rather than the strong speculative development that often characterised the market prior to 2008 which led then to a surge in available supply.
According to JLL’s industrial capital markets director Philip Marsden, that situation is now radically changed. Of the 7 million sqm of space currently being built across Europe, well over 30% is now being built by owner-occupiers and another 55% is already pre-let. “Low completion volumes, in combination with robust demand over the past three years, have reduced readily available modern space to its lowest level over the last decade,” he said. Apart from in Russia, where speculative building around its largest cities is still strong, this is unlikely to change much in the next two to three years.
The owner-occupier and build-to-suit market is often characterised by demand for mega-buildings of 100,000 sqm or more, often located in outlying sites where job alternatives are few and local subsidies can overcome the lack of immediate proximity to markets. Several of Amazon’s giant facilities in Germany and France would meet this criteria, along with new developments for German bookseller KNV, shoe retailer Zalando in North Rhine Westphalia, and the bigger German food retailers such as REWE and EDEKA.
The current climate is proving propitious for the big logistics investors. Henderson Global Investors has just raised €230m of equity for its German Logistics Fund, a partnership between Henderson’s German Property Business and logistics specialist Palmira Capital Partners. With gearing, the fund has the firepower to invest up to €350m in the German logistics market on behalf of its mainly German and Austrian institutional investors – much more than the €250m envisaged last year.
This is Henderson’s second ‘Spezialfonds’, and is targeting an 8% annual return by focusing on logistics assets in top locations with what it describes as a ‘high degree of tenant flexibility’ across several major logistics hubs in Germany. The first six assets have already been bought (in Bad Dürkheim, Bruchsal and Herrenburg near Stuttgart) with several others close to completion.
Henderson is beefing up its logistics capacities to build on its traditional retail property expertise. Fund manager Thorstne Kiel said in a recent note, “Investors are recognising the opportunity for significant performance in this niche but maturing asset class. Its central location, first class infrastructure, affluent population and export – orientated economy make Germany one of the leading global logistic locations.”
Henderson Global Investors recently announced a major partnership with US educational pension fund TIAA-CREF to form a giant new management company, TIAA Henderson Global Real Estate, launching in 2014, and bundling the pension fund’s European real estate business together with Henderson’s European and Asia-Pacific-based real estate businesses into a global distribution and servicing platform.
Meanwhile, after three rounds of an extended auction procedure handled by Jones Lang LaSalle, logistics specialist Prologis emerged the winner in buying a six-building logistics portfolio with about 220,000 sqm from Schroder Property for about €163m, reflecting a capital value of about €740 per sqm. The assets, from Schroder’s Pan-European Property Logistics Fund, were sold for higher than their current book value, said Schroder.
Most of the buildings are based around Hamburg, Hanover and Munich. Several further assets from the Logistics Fund are also up for sale, with a number of deals ‘imminent’. Prologis has developed and markets 89 buildings with 1.7m sqm of logistics space at 44 different locations across Germany.
Schroders’ Buddy Roes, fund manager of the Logistics Fund, said the ten-year-old fund now holds assets valued at €470m throughout Germany, France, Benelux and Italy. The sale to Prologis above book value he attributes to, “our successful leasing of the six key logistics sites over the past 18 months which improved the security of income and reduced the vacancy. The quality of this portfolio was the main factor for the strong interest, the great locations, along with the stable rent levels, created significant interest from investors.”
Prologis is on a confident buying roll at the moment, buoyed by its announcement last week that its Prologis European Properties Fund II (PEPF II) has received new capital commitments of €450 mln after opening to new investors for the first time.
Investor demand exceeded the offering amount and fundraising closed ahead of its mandated period, the Denver-based group said in a statement.
In September, PEPF II accepted final capital commitments to reach the €450 mln equity cap for the offering, which includes €125 mln of additional capital committed by Prologis. Approximately 70% of the equity came from new investors. Subsequent to the capital raising, the fund has deployed almost half of the €450 mln into acquisitions from Prologis and third parties.
“The strength of the equity raise reflects the fund's high-quality offering and the attractiveness of the European logistics market,” said James W. Green, head of global client relations at Prologis. “European logistics asset values are poised for sustainable growth with favourable supply/demand imbalances and positive rental growth expectations.”
REFIRE: Christopher Garbe, the head of leading German logistics property investor GARBE, will be speaking on logistics opportunities in Germany at the forthcoming REFIRE London Conference on November 12th. See www.refire-online.com/london-conference-2013 for details.