Logistics demand seen outstripping supply through 2030

There has been an understandable focus on the Logistics real estate sector over the past six months, with general agreement that the segment has been a major beneficiary from the COVID-19 crisis, as the demands of e-commerce lead to ever more clamour for near-shoring, last-mile and all manner of logistics assets that promise more efficient and timely delivery.

REFIRE itself was active as moderator in a recent Roundtable discussion held online with Targa Communications, where a large audience tuned in to learn about the latest development on the German market.

All the market observations – and indeed prognoses for the future direction of the asset category “Logistics and Light Industrial” – which were discussed in that Roundtable have also been the subject of a major survey, The Logistics and Real Estate 2020 Survey (now in its sixth edition), which has since been released and was presented in an online launch last week. The survey was compiled by BulwienGesa in partnership with Berlin Hyp AG, BREMER AG, Garbe Industrial Real Estate Gmbh and Savills Immobilien-Beratungs GmbH.

The survey was carried out up to the end of July, using data for about 1,775 logistics assets either under construction or in planning, with particular emphasis in this year’s study on “Sustainability”.  We summarise some of the key findings below:

Investments in German logistics, Unternehmensimmobilien-type and industrial real estate had already reached a new high-water mark in 2019 with a volume of more than €9 billion. Analogously, the sum total of recently completed pure logistics accommodation set a new record with 4.9 million sqm, within an overall upward trend; the demand for new-build facilities between now and 2030 amounts to 6.5 to 7.0 million sqm, and will continue to exceed the available supply by quite a margin.

Selling prices have gone up in recent years, while initial yields of logistics real estate have dropped in reverse proportion to the range of 3.7% to 6.8 % (2019), depending on location. However, the price growth HAS lost some of its momentum during the first half of 2020.

There are now clear signs of an increase in speculative building as opposed to just building to meet identified demand. Andreas Schulten, CEO of BulwienGesa, sees demand heading in only one direction. 

“Based on the projects currently under construction, we anticipate more than five million square metres of new-build accommodation in 2020 - which is a new all-time high. The actions of property developers and investors betray optimism as they assume that the demand for logistics facilities will keep going up. The coronavirus pandemic, too, has shown: Logistics is the lifeline of our national economy and of fundamental importance for the purpose of supplying the population. Expanded stockpiling in the production and retail sectors is an option intensely discussed at the moment. Moreover, the pandemic has further fuelled the growth in e-commerce. Logistics floors space requirements, which are high anyway, will keep going up.”

Michael Dufhues, board member of BREMER AG, told the audience: “We build predominantly in major logistics regions. But we have also noted that more and more occupiers are contracting us to build logistics properties in peripheral regions.”

Over the last five years, 2015-2019, investment in the German logistics market was headed by GARBE Group with a total spend of €1.9bn, followed by Blackstone (€1.8bn) and Frasers Property (€1.8bn). Next comes China Investment Corporation (CIC) and then Union Investment at some distance, although Union Investment has made up ground by investing more than €500m this year alone.

As to who is doing the investing – the share of German investors has surged from one third in 2017 to about two-thirds today. Bertrand Ehm, head of industrial development at Savills, told the audience, “International players were more reticent during the first half-year of 2020. But the bottom line is that the onset of the coronavirus pandemic did not adversely impact the commercial investment market in Germany during the first half-year of 2020. At nearly €2.7 billion, the volume in logistics real estate alone increased by 80% over the prior-year period.” While the logistics and warehouse properties traded during the first half-year of 2019 added up to €1.5 billion euros, the mid-year total in 2020 equalled €2.7 billion.

The survey presentation also addressed the attitude of the banks in financing logistics assets. Assem El Alami, the head of real estate finance at Berlin Hyp, told the audience that sustainability issues were becoming increasingly important in funding decisions.

“Sustainable logistics properties)have higher mortgage lending values and are often granted superior funding terms compared to non-green logistics properties. Together with the other survey partners, we drafted proposals for the body politic that are meant to expedite the installation of photovoltaic systems. Because these contribute in decisive ways to the climate policy goals both on the level of the European Union and on the national level of Germany. They represent a core element for the CO2 reduction in line with climate protection measures, and the real estate industry wants and has to contribute to the effort.”

New-build construction decisions on greenfield sites, or demolishing and rebuilding brownfield properties, are increasingly subject to sustainability thinking, said Jan Dietrich Hempel, managing director of GARBE Industrial. “In many cases, investing in older property stock and extending their service life is a more resource-conserving approach. Not just because it makes environmental sense, but also because it is economically sensible.”

Once the decision in favour of a new-build construction has been made, it is of the essence to plan and execute the property in ways that keep its resource consumption as low as possible across its entire life cycle. “Important in this context is to minimise the CO2 output or to achieve CO2 neutrality within the framework of the property operation,” emphasised BREMER AG‘s Michael Dufhues. “Moreover, the use of recyclable materials will improve the climate footprint in the context of a possible conversion and the eventual demolition.”

Investors with a long-term horizon will also keep giving more weight to sustainability aspects in their investment decisions because they will improve the lettability. Occupier demand for energy-optimised logistics real estate is growing - motivated by in-house guidelines, but also in response to client requirements. Or simply because it pays to do so: “A sustainable property is energy-optimised and ideally even emissions-free,” said Bertrand Ehm of Savills. “As a result, it is not necessarily more expensive, because it will incur lower service charges or even generate more energy than it needs.”