M7, Frasers and Granite to the fore in new logistics deals

Some of the standout logistics deals of the past month on the German market were transacted by foreign investors, including the UK'S M7 Group, Frasers of Singapore and the Canadian group Granite, against a background characterised by an ongoing shortage of suitable logistics properties.

M7 invested €140m on behalf of its M7 European Real Estate Investment Partners IV (EREIP IV), its largest fund so far, with a further €35m expected to close over the summer months, it said. In a combination of portfolio and individual deals it bough 68 separate assets totaling 331,000 sqm across Denmark, Germany and the Netherlands.

When completed, the total fund portfolio, which is managed by M7 through its pan-European platform, will own 1.3 million sqm across 212 multi-let office and industrial assets with a WALT of 4.2 years and a vacancy of 17.1%.

Meanwhile Frasers Property Europe (FPE), part of Singapore-incorporated Frasers Centrepoint, has purchased four logistics facilities in Germany, for an undisclosed sum. The four properties, sold by UK REIT Segro, consist of over 85,000 sqm lettable area and have a weighted average lease expiry (WALE) of five and a half years. They are leased to international logistics companies. Three properties are located in the federal state of Saarland, while the fourth is located near Ulm in Baden-Württemberg.

Canadian-based REIT Granite Real Estate Investment is buying a 717,00-sqm warehouse and logistics property in Erfurt for €54m for an initial yield of 5.4% exlcusing transaction costs. The property is fully leased, mainly to LGI TechLog GmbH, a subsidiary of the Swedish Elanders Group, with a WALT of 4.7 years.The company has already built up a presence in the German logistics market.

Meanhwile, Warsaw-listed logistics real estate company MLP is expected to to begin its first German project development this year on a brownfield site in Unna near Dortmund, and has also secured further conversion sites in Mönchengladbach and a greenfield site outside Berlin.

MLP is both a developer and portfolio owner and manages logistics properties totaling around 1 million sqm of lettable space in Poland and Romania. CEO Radoslaw Krochta said he would like to develop three large projects annually in Germany in order to acquire 500,000 to 700,000 sqm of managed space within three years. If achievable, this would rapidly put MLP very much on the map as a serious logistics developer and investor.

In financing, German securities services provider DekaBank has arranged a €117.3m loan facility for KWASA Goodman Germany, a co-investment between Goodman and Malaysia's Employee Provident Fund (Malaysia), to finance three logistics facilities in Germany.

pbb Deutsche Pfandbriefbank jointly underwrote the loan facility with DekaBank acting as arranger. The loan was structured as a forward facility with three different drawdowns upon the completion of each asset.

The first property consists of a modern logistics asset located in Ergolding (Bavaria) and fully let to BMW until 2032. Two further assets are located in Marl and let to the Metro Group on long leases. The Metro properties, with a combined area of approximately 235,000 sqm, make them one of the largest logistics assets in Europe.

A recent report by property advisers CBRE highlights how, following last year’s major portfolio transactions (including Hansteen, Logicor), the shortage of suitable logistics properties has intensified yet further. Transaction volume in the 1st half year was €3.2bn, 41% below the record year of 2017.

This is still the second-best midyear result of all time according to Colliers International, which gave the same numbers, and BNP Paribas Real Estate (€3bn, -47%). CBRE confirmed that investor interest in the segment remains very high, particularly among foreign investors who make up 72% of investors in the segment, higher than in any other asset class.

Colliers has observed a slowdown in yield compression and sees peak value unchanged at 4.65% since the end of 2017. In contrast, the gross yield for increasingly popular industrial properties fell by 10 basis points to 5.9%. CBRE also forecasts that the current peak yields of 4.35% will fall in smaller steps as the year progresses.

Hubert Reck, co-head of industrial & logistics investment at Colliers, commented: 'As expected, it proved impossible to exceed the outstanding results of the previous year (H1 2017: €5.4bn), which can primarily be attributed to several large-volume portfolio deals. Nevertheless, 2018 mid-year results significantly outperformed previous H1 results. Industrial and logistics investment volume is double the five-year average, for example, making it the second-highest result ever recorded.'

Peter Kunz, co-head of industrial & logistics at Colliers, added, 'The main problem continues to be insufficient supply. Development sites are particularly scarce in conurbations with construction costs increasing every year, which in turn has an impact on long-term rent trends. You also have the fact that municipalities prefer residential and office developments over pure logistics projects.'

Traditional logistics properties, which accounted for more than two-thirds of total investment volume, were not the only asset class to meet with investor interest. Industrial properties and business parks once again proved to be a coveted investment target as well, generating over €1bn in the first half of the year and doubling their share in total investment volume.