European logistics yield sees fall to below 6% on sustained demand

The average European logistics yield dropped 14 basis points (bps) to 5.95% in Q2 2018, the first time it has fallen below 6% since Cushman & Wakefield began regularly tracking the three main property sectors in 1992, according to the firm’s recently-published DNA of real estate report.

All logistics markets monitored in Germany, Italy and Sweden recorded inward yield movements during the second quarter, and a couple of UK locations also contributed to the overall shift down to 5.95%.

About a third of the monitored office locations saw some yield compression with a prime weighted average down from 4.49% to 4.42%. In contrast, high street retail yields softened in a few locations and the overall prime yield moved out by 1 bps to 4.19%.

According to Lisa Graham, head of EMEA Industrial and Logistics Research & Insight at Cushman & Wakefield, “Logistics properties have increasingly become a desirable asset for real estate investors on the back of the growth for e-commerce and the streamlining of supply chains, and now account for a growing share of investment activity supporting a strong reduction in yields over this period… Yields in almost all monitored markets are at their 10-year low, although we believe there is still room for further downward movement in selected markets during the second half of the year.”

Despite the fall in the prime logistics yield below 6%, the gap relative to office and retail is still higher than in the previous cycle, Cushman said.

A new report published jointly by Savills and consultancy group Industrialport shows that while transaction volume in German logistics property dropped by 58 % to €1.875 billion during the first six months of 2018, revenue from industrial property increased by 27 % to €478mn.

For commercial or light industrial parks, the Savills and Industrialport logged a plus of as much as 153 % (to €481bn). The total market for logistics and industrial property, however, declined compared to record year 2017 by 45 % to €3.15bn.

Investments have largely been focused on the top 7 regions. “Despite very favorable market conditions and the associated shortage of available property in logistics regions, there is very little demand for property on the logistical periphery,” says Industrialport’s managing director Peter Salostowitz. Low-risk investors concentrated almost exclusively on high-end products in good macro-locations. “In light of a market environment negatively affected by political circumstances, we expect that investors will remain averse to risk,” says Savills’ Head of Germany Marcus Lemli.

Meanwhile, in company news, Blackstone confirmed it is taking over the remaining properties of Hines Global REIT in German. The properties included are the 90,000 sqm “Fiege Mega-Center” in Nesse-Apfelstädt near Erfurt, as well as logistics centers in Duisburg, Nuremberg-Feucht, Karlsdorf near Karlsruhe, and Forchheim, all of them developed by Harder.

There has been talk for some time about Hines dissolving the global REIT. Two years ago, it still had six assets in Germany, the above five logistics assets and the Mercedes Bank headquarters in Stuttgart, which was sold to the state of Baden-Württemberg in 2017. In spring, Hines Global REIT had quoted the Germany portion of its $4.4bn portfolio as making up 7 % of overall assets. That would put the value of the properties now sold to Blackstone at roughly $300mn. Hines is also selling five logistics centers in Poland (Warsaw, Katowice, and Wroclaw) to Blackstone in parallel with the sale of the Germany portfolio. The total sale price for the German and Polish assets amounts to €450mn, not including ancillary costs.