Logistics the star performer, with light industrial finally coming of age

In the week which saw the death of the company's founder, Ingvar Kamprad, at the age of 94, the legendary Swedish furniture chain IKEA announced ambitious plans to build a series of new distribution and logistics centres across Germany.

The company has just opened a 40,000 sqm distribution centre on an 86,000 sqm site between Hamburg and Bremen costing €60m. It plans to replicate this in most major German metropolitan regions, owning the assets itself. It urgently needs to expand upon its current facilities, a company-owned central warehouse in Dortmund and a leased distribution centre in Berlin.

This existing capacity is proving totally inadequate for the surging demand in customers who are now ordering their IKEA products online and want them delivered to their homes.

But wait. Isn't this the company who, apart from inventing the concept of flat-pack furniture, pioneered the shop layout that had millions of customers ending up buying many more of its products than they'd originally intended – largely because it's practically impossible to avoid the meandering one-way circuitous route through every department in its stores before finally arriving at the cash desk, laden down with all sorts of appealing knick-knacks that seemed irresistible as you passed them by?

That may still be most common experience for most IKEA customers. But the company has been feeling the chill winds of competition from furniture-selling rivals like Wayfair and Amazon, who are perceived as having stronger digital customer service capabilities.

This led IKEA last year to buy TaskRabbit, a company that links customers to handymen, letting users hire temporary workers to deliver purchases and assemble furniture. Once shoppers have bought their products, they can hire a 'tasker' from the TaskRabbit app, and get a quote as to how much it would cost to assemble that Billy bookcase or Malm bed frame.

And yes, millions of customers increasingly can't bear the thought of traipsing miles through the IKEA labyrinth just to check out a bathroom stand or a bedside table (at least, not without fortifying themselves with a portion of Köttbullar with lingenberry sauce). Hence the surge in online ordering and the ensuing demand for more local delivery and installation.

It's no surprise therefore that Germany saw more logistics centres traded last year than ever before, with most of the big brokers putting the transaction volume at about €8.6bn, up nearly 80% on the previous year. Yields fell correspondingly by 50 to 75 bps, and are likely to be trading at around 4.4% now – still about 170 bps higher than traditional office or retail, but sobering levels nonetheless, given the premium normally implied for the sector.

The arrival of Singapore's Frasers Centrepoint into the German market, paying a premium of 4% to get its hands on a portfolio of Hermes last-mile logistics assets for business-to consumer deliveries, is testimony to the frenzy that has broken out in the logistics market, as big players scramble to position themselves in the ongoing battle for customer convenience. Gulf Islamic Investments is paying €121m for 75,000 sqm of Amazon's new 75,000 sqm warehouse in Dortmund, GII's first German investment. There's more where that came from – Amazon has twelve giant warehouses in Germany, with 16,000 permanent jobs, and growing.

Foreign investors in particular are ploughing into the market via large portfolio deals, while German investors, through large open-ended and Spezialfonds, are still responsible for the bulk of the individual asset transactions. Brokers estimate that about half of all logistic investments in Germany last year were by Asian investors. Last year's biggest deals, the sale of Logicor, the Hansteen portfolio, the Gazeley portfolio, the Gramercy assets and the Geneba portfolio all saw foreign buyers – predominantly Chinese – swooping in to suck up logistics assets in Europe's biggest economy. It looks like the trend has plenty of mileage in it yet.

While yields may have come down for Big Box-style warehouses, hungry investors are rooting around for value in the less-standardised Light Industrial sector. As globalisation and digitalisation heighten their grip on industry, this should bode well for the kind of flexible workshop-cum-administration set-ups that allow small manufacturers take advantage of innovative robot technology to produce, sell, manage and store modest quantities of goods in urban locations with about 800 to 1200 square metres of usable space.

We track these companies closely at REFIRE, companies such as the UK-listed Sirius Real Estate, Blackstone/M7, Rolf Elgeti's Deutsche Industrie Grundbesitz, and other unlisted companies who are probably earning 6% on the light industrial assets in their logistics portfolios.

Deutsche Industrie Grundbesitz, which floated on the Frankfurt Stock Exchange just last December, is the brainchild of Rolf Elgeti, who has a stellar track record in adding value to listed German real estate companies. As principal shareholder, along with two senior executives from Aurelius who also know a thing or two about industrial property assets, the company's shares are up 50% in just over a month. Having cracked the €100m in market cap, and striving for REIT-status, we imagine the company has a good deal further to go.

It's not a glamorous business, light industrial. The assets tend to be office/warehouse, general purpose buildings that can be adapted to a small user's needs, and have a resale value for another type of customer. Plenty of potential there.