German logistics property sector reaches highest-ever market share
Several reports coming in from the various property brokerage groups seem to underscore that the logistics real estate sector in Germany is enjoying a boom, with this year’s transaction volume already ahead of all of last year’s, and practically double the entire volume reached in the years 2010 and 2011. The significance of the sector in relation to other real estate sectors (residential, office, retail) is, at 9% market share, well up on the 4% of 2011 and 7% of 2012 to reach its highest-ever level.
From being a ‘special interest’ investment product a few years ago, warehouse and logistic properties are now for many a mainstream investment asset class. Part of the attraction is the comparatively high level of initial yield, and being less subject to the yield compression more common in other categories. This has made the asset class more acceptable to conservative institutional funds, such as REITs, open-ended funds and Spezialfonds, who now make up half of all investment in sector. The risk-adjusted returns in the sector have also seen the amount of private investors looking for exposure to the sector in Germany rising fivefold since 2011.
Figures from Jones Lang LaSalle show the take-up in logistics space in Germany in the first nine months of the year at 3.75 million sqm, topping last year’s full-year total of 3.71 million sqm. Take-up from owner-occupiers rose 16% to 1.7 million sqm, while lettings declined 9% to about 2 million sqm.
In investment terms, Colliers puts the volume for the first three quarters at about €1.7bn, ahead of last year’s total of €1.6bn for the full year. There is clearly much new investment activity afoot. (Logistics real estate in Germany is one of the themes we will be looking at closely at the REFIRE London Conference on November 12th – see our website for details www.refire-online.com).
A recently-published report by the Nuremberg-based Fraunhofer Research Institute points to particularly strong potential in the areas of the lower Rhine, Hamburg, Berlin, Rhine-Main (around Frankfurt) and the eastern Ruhr region. At a press briefing at the Expo REAL recently, Uwe Vers-Homm, one of the authors of the study, said that the supply constraints of building land close to the largest German cities was causing a problem that was feeding through to much higher rents (e.g €200 per sqm near Munich compared to €50 per sqm in many parts of North Rhine-Westphalia.
Changes in consumer behaviour are also obviously having a direct effect on the needs of the logistic sector. The food sector and its complex supply chain need distribution centres close to their customers, while e-commerce often focuses on hubs in the middle of the country. “The only e-tailer that is going against that trend now is Amazon, having built a lot of space near the large cities,” said Veres-Homm. Development activity has increased over the past two years, with 3m sqm new space expected by the end of 2013. The institute sees massive changes ahead as retailers shift to multi-channel distribution, including home delivery.
Peak yields across most European logistics markets have stabilised over the last eighteen months, and are between 6.5% and 6.85% in assets close to large German urban centres. In the UK (outside London), Belgium, the Netherlands and France, top yields average between 7.0% and 7.25%.
A new cadre of investors in the sector is about to be exposed to the European markets, many for the first time, following the recent acquisition of European logistics group Point Park Properties (P3) by the Texas-based private equity firm TPG, who has teamed up with Canadian institutional investor and manager Ivanhoe Cambridge to buy P3 from Bahrain-based investment company Arcapita.
P3 owns 48 warehouses and logistics properties with 1.46m sqm as well as a valuable land bank across Europe, on which it could develop a further 600,000 sqm of lettable space. About 290,000 sqm of this are German logistics and commercial property. The two new owners said in a press statement they were committed to injecting additional capital into the business. The predominantly Sharia-compliant P3 pulled a planned €250m IPO in London last year, but has obviously found a valid alternative path to securing investment for European growth into a sector that is now seeing heightened investor interest.
US logistics giant Prologis also recently said it had raised a fresh €450m for its core logistics fund, the Prologis European Properties Fund II, closing the fund a full three months ahead of schedule due to investor demand. Around 70% of the capital for the latest fund-raising round came from new investors looking for European exposure, said James Green, head of global client relations at Prologis.
The European Properties Fund II targets a net leveraged IRR for investors of 9-10% annually. The Fund owns 220 assets with a total lettable area of 5.2 million sqm in 12 European countries and concentrates on core logistic properties. The assets in the Fund are 96% leased, according to the Fund documents.
Prologis’ Green said his company viewed the European logistics market as having “very strong operating fundamentals”. Given the lack of supply being added to the market, he said, “There is going to be a 20% rental growth over a five-year period.”