Logistics yields remain under pressure as buyers swarm in

The German for logistics real estate investment had it s best year last year since 2007, with nearly €2.3bn of transaction volume, up 40% on the year before, with 75% being invested in existing logistic assets. About €1.2bn or 52% came from institutional funds, while foreign investors were responsible for nearly half (46%) of all investment, the latest figures from property advisor Colliers International show.

This makes for the fourth year in a row that German logistics volume has exceeded the previous years, with increasing pressure on yields as prices rise. Of the six major metropolitan areas examined in the study – Berlin, Düsseldorf, Frankfurt, Hamburg, Munich and Stuttgart – the average top yield was 6.90%, or 22 basis points lower than twelve months previously. The most expensive was Frankfurt with yields of 6.7%, followed by Düsseldorf and Munich at 6.75%, Berlin at 6.8%, while Hamburg and Stuttgart remained unchanged at 7.2%.

CBRE also issued figures on the logistics market for the year, which differed slightly from Colliers, but agreed on the main points. The investment volume now makes logistics property the third-largest real estate asset category behind office and retail, with 7.1% of total investment. Almost 70% of the investment volume went to the Class A new generation distribution facilities including cross docks, about 25% to standard warehouses and the remaining portion to production facilities, say the CBRE figures.

All the big brokerage groups are predicting further strong demand through 2014, as global capital pools re-position to take advantage of the surge in online shopping, which is transforming the industry. Over the last eighteen months big new investor names piling into European logistics real estate include Norges REIM managing Norway’s giant pension fund, Prologis, Blackstone-Logicor, Canada Pension-SEGRO, Brookfield-Gazeley, HOOPP-Verdion, Point Park-TPG Ivanhoe Cambridge, TIAA-CREF-Henderson, while Australian-owned Goodman Europe is boosting its GELF fund, and teeing up a partnership with a Malaysian joint venture, to name just a few.

The rise in the market share by foreign investors (of 6% to 49% last year), and overall demand for exposure to the sector is likely to continue this year. According to Peter Kunz, head of industrial and logistics at Colliers International, "If the positive forecasts for the German economy kick in over the next couple of months then the overall prospects for the logistics investment market in Germany could improve even further. The domestic economy could grow noticeably if the USA and China are strong, in which case the willingness to invest and demand for new storage, logistics and light industrial space could all rise. We are confident we will again see more than €2bn of investment in the sector this year", he said.