Manufacturing still the prime driver of German industrial take-up

A new report by Capital Economics examines the rise in German industrial take-up, and concludes that prime rents will continue to edge up over the next two years.

Although retail has been gaining all the headlines, with the need for logistics properties to handle ever more online commerce, the report highlights how it has been the manufacturing sector that has been the real driver of rising industrial deman in recent years.

Industrial take-up reached 6.85 million sqm last year – nearly 1 milion sqm more than in 2015, itself the hitherto best year on record. This rise was supported by a 57% annual increasin in occupier demand from the wholesale and retail sector – not surprising, given the rise in online sales, which were estimated at 14% of total retail sales last year, up from 10% in 2012.

However, the manufacturing sector has become an increasingly important source of occupier demand for the light industrial and logistics sector in Germany, a trend noticeable since 2011. By contrast, the share of take-up from logistics firms has been declining, although accounting for about a third of total takeup. This is partly explained by large companies such as Amazon investing in logistics sites in western Poland or the Czech Republic to service the German market.

The buoyant German economy should continue to translate into stronger demand for industrial space. With an expected rated of economic growth of 2.3% this year, 2% for next year and 1.5% in 2019, thanks to a weak euro and a pickup in the world economy, there is still solid growth ahead. However, there are still concerns about domestic demand, dampening more euphoric estimates, says Hamish Smith, the report's author.

The study concludes that, given robust rates of economic growth likely to be supportive of occupier demand, prime industrial rents in Germany's main cities should still rise by between 2% and 4% cumulatively over the next three years.

Still, the demand from big retailers will continue to be felt. In recent media interviews, Raimund Paetzmann, now a consultant but previously Amazon's European Real Estate Director, has said that the largest online retailers like Amazon and Zalando will need at least 75% more space by 2022 if they want to keep up their growth rate.

"Assuming that the major providers in Germany have a combined total of approx. 16 distribution warehouses by the end of the year, by 2020 around another twelve will be added just for these companies", said Paetzmann, in an interview with German puclication Thomas Daily. He estimated that food online services such as the recently launched Amazon Fresh in Berlin will have a 12% market share in ten years. "As soon as the first provider is able to gain trust by providing high-quality products, the food delivery business will grow exponentially", says Paetzmann.

Germany's big brokers have been collating their figures for the first half year, and now report that, within commercial property, the biggest growth so far has been in logistics, spurred on by a number of big deals, particularly the sale of Logicor to CIC, with German assets worth about €2bn, and the Hansteen deal of the first quarter.

JLL and BNPPRE report a market share of over 20% for logistics properties, putting them in second place ahead of retail assets for the first time, after office property at 40%. Foreign investors increased their share to about 48 %, with Asian buyers prominent (about 13 %). For the full year, the €50bn turnover mark is well within reach, topping even the record year of 2015, forecasts BNPPRE.