Rent in German industrial markets to recover by year-end

With Germany's industrial activity expected to rebound in the second half of the year, the researchers at Capital Economics expect to see prime industrial rents returning to growth by the end of the year.

Continued growth in online sales and the constrained supply outlook should underpin this recovery in the four main markets (Berlin, Hamburg, Frankfurt, Munich) this year, they say in a recent note. However, rental growth will be dampened by occupiers looking for cheaper, alternative locations, they suggest.

Prime industrial rents held steady in most German markets last year, except for Munich where rents rose by almost 1% year on year. This was a slowdown compared to recent years but was better than expected given the 5.3% annual fall in national GDP. This reflected that demand from wholesale, retail and logistics occupiers helped to offset the impact of weakness in manufacturing.

While that manufacturing has recently been recovering, the wave of lockdowns have taken their toll on consumer activity, which does not augur well for occupier demand in the main four markets. At least not the current quarter, which is likely to be mostly, if not all, in lockdown.

Looking beyond that, the researchers say that take-up should recover strongly, with domestic activity in Germany rebounding as the lockdowns are gradually unwound, and its trade with the US and China recovers. This will probably put upward pressure on prime industrial rents by year-end, they forecast, particularly in view of a limited supply pipeline. Hamburg provides an exception, with nearly 70% of its space coming onstream this year speculative, so that rents there are likely to hold steady.

Even in the big German markets though, rental growth will be restrained, with occupiers continuing to look for alternative locations that offer better value, with many areas close to the main centres that can still serve a large population and where land is more available and cheaper. Indeed, they note that despite stronger demand from wholesale, retail and logistics occupiers last year, take-up in the main four markets continued to decline as a share of the total.

Prime industrial rents in the main markets should rise by about 9% by 2025, they forecast, compared to a cumulative growth of almost 15% over the previous five-year period. So, a slowdown, yes - but still better than the researchers’ expectations for either office or retail rents.