Warburg-HIH Invest Real Estate GmbH
Alexander Eggert - Warburg-HIH
“The selection of location and asset relies on a multi-variable procedure that considers the inflow of young population cohorts as well as the concentration of strong technology companies or the local demand for office accommodation,” said Eggert.
Rents for Industrieimmobilien, or industrial properties, soared by 8.7% last year, according to the latest IWIP Index, published earlier this month by consultancy IndustrialPort and the German Economic Institute (IW Köln), amid news that the sector now accounts for 10% of the overall commercial real estate market.
Industrial properties can broadly be divided into four sub-sectors, according to Martin Czaja, speaker of the executive board at industrial property investor and developer, BEOS: ‘Transformation’ properties ripe for renovation, classic production facilities, business parks and storage facilities of less than 20,000 sqm.
And rents can vary widely, according to Peter Salostowitz, a managing partner at IndustrialPort. ‘In Berlin’s city centre, we have even seen rents of €15.71 per sqm,’ he told REFIRE. ‘However, that is not the norm. Elsewhere, typical rents are around €6.5 per sqm.’ According to Rainer Koepke, head of industrial and logistics at CBRE Germany, industrial property rents often range from €4 to €7 per sqm per month.
‘Rents will go up in the Top 7 this year because vacancy rates are below 1%,’ Koepke said. ‘It’s hard to say by how much because the economy is weakening but probably by around 3%.’
Around 25% of all German warehouse space, or around 150,000 sqm, forms part of the IWIP index. Sub-indices for storage, logistics and production have risen by 7%, 2.2% and 14.2%, respectively, although there are big regional differences, also in terms of how the buildings are equipped, according to IndustrialPort and the IW Köln. The logistics segment witnessed the least growth due to the development of the investment market, according to Jan Stemshorn, director and team leader of the industrial agency of Savills in Cologne. (Companies contributing data for the index include Beos, BNP Paribas Real Estate, Engel & Völkers Commercial, Immowert, Palmira Capital Partners and Savills.
In the first quarter, industrial take-up totaled 1.7m sqm, down 14% on the first quarter last year, according to Stemshorn.
‘We don’t think it’s a risky asset class,’ Czaja told REFIRE. ‘Actually, we like the margin of safety. Typically, industrial yields are 200 bps above office yields, or up to 8%. We like multi-use and multi-tenant properties.’
Interestingly, industrial stock almost rivals office stock in Germany, according to Czaja, with around €600b of offices in Germany, compared to €562b of industrial properties. ‘The difference is that only a small percentage of industrial stock is investment grade,’ he said.
Last year, there were €2.8b of industrial property deals, excluding big-box logistics, according to Czaja, which rose to €6.8b for all logistics deals, according to Colliers.
Deal volume slides by almost 40% q-on-q
However, the lack of supply is putting a dampener on investment. Around €1.1bn was invested in German industrial and logistics assets in the first quarter, a drop of 38% y-on-y and down 10% from the five-year average for the first quarter, according to Colliers.
‘The lack of land, coupled with business restrictions is an issue, as is land banking,’ said Peter Kunz, head of logistics and industrial EMEA region at Colliers. ‘In addition, there is no vacancy in the hot spots.’
For his colleague Hubert Reck, head of industrial & logistics Investment at Colliers International Germany, ‘the industrial and logistics asset class has become an important pillar of the German investment market as reflected by consistent double-digit market shares over the past several years’: ‘Potential demand on the current seller’s market is being offset by limited supply of both stock and new-build assets, which is putting the brakes on the transaction volume,’ Reck added.
Industrial assets accounted for around one third, or €357m, of the total transaction volume in the last quarter, according to Colliers. Notable deals include Deutsche Industrie REIT-AG’s purchase of three production sites in Remscheid (NRW) and Freisen (Saarland) for a total of €15.4m, reflecting a yield of 9.7%. The Titanium joint venture between AXA Investment Managers and Sirius Real Estate also boosted this figure, with AXA acquiring a 65% share in five Sirius business parks with a total value of around €168m in Berlin, Mainz, Nuremberg and Bayreuth.
Foreign investors are also very active in the space, accounting for 45% of deals, according to Betrand Ehm, director of industrial investment at Savills in Germany: ‘Institutional fund managers, investment managers and asset managers constitute most of the active players,’ he said. ‘Beos, Blackstone, Frasers Centrepoint, Invesco and LIP belong to the most active investors. ‘
Lack of high-volume portfolio deals above €300m mark
While portfolio deals accounted for 54% of transactions, or around €613m, they were typically below the €300m mark, according to Colliers. One large deal was Barings and Tristan’s joint acquisition of 25 German and Danish cold storage properties comprising 260,000 sqm and known as ‘Project Coldplay’ from the Nagel Group for more than €250m. Other deals include Invesco Real Estate’s purchase of a portfolio featuring six new logistics properties from development joint venture MP Holding and Isarkies on behalf of Bayerische Versorgungskammer for more than €100m.
Lack of standardization poses challenges
One of the key challenges is the lack of standardization in industrial properties, according to Czaja. ‘If you’re transforming a property, you also need a developer’s skill set. Different tenants have different needs. It’s a bit like managing a shopping centre,’ he laughed.
For Koepke, asset management can be a challenge for some investors: ‘It’s very asset management intensive, so some developers don’t like it so much. As a result, there is not enough supply and it can be particularly hard to find spaces of less than 5,000 sqm.’
Salostowitz says another challenge is steeply rising land prices in big cities. ‘However, the shortage of land is also helping to drive growth, as is e-commerce,’ he said. ‘The quality of stock is also improving as older properties are replaced or refurbished.’
Ultimately, as logistics has moved into the mainstream, its industrial counterparts are now starting to play catch-up. ‘Logistics has become so liquid, it shows how far down the line we’ve come,’ said Kai Oulds, managing director and head of logistics investment at CBRE in Germany. ‘You’ve got a lot of SMEs in Germany (retail and wholesale alone account for 15% of SMEs) and they are helping to drive the light industrial space.’
And despite deterioration in real economic conditions, with foreign trade in particular appearing to lose momentum, demand for logistics is likely to continue its upward trend, according to Stemshorn. ‘Many institutional investors will be looking to increase the proportion of logistics property in their portfolios this year, suggesting that 2019 will also produce an above-average transaction volume.’
Salostowitz also expects the transaction volume to remain above average, ‘so that we can reach a property deal volume of about 6m sqm in 2019’.
Warburg launches new €400m German office fund
German asset manager Warburg-HIH Invest Real Estate has set up a new open-ended fund to invest in core and core-plus office properties across Germany. The new Deutschland Selektiv Immobilien Invest II fund, which plans to raise at least €400m, will target properties “in selected fast-growing cities”.
Assuming a minimum fund volume of €400m and a gearing ratio of no more than 50%, Warburg said the dividend yield was expected to equal 4%. Institutional players may invest in the fund by acquiring equity interests of €5m or more.
According to Alexander Eggert, managing director of Warburg-HIH Invest, “The fund will invest in core and core-plus properties worth €20m euros or more in cities characterised by a fast demographic and economic growth.”
“The selection of location and asset relies on a multi-variable procedure that considers the inflow of young population cohorts as well as the concentration of strong technology companies or the local demand for office accommodation,” said Eggert. Cities such as Bremen, Bonn, Darmstadt, Dortmund and Dresden are identified as typical growth cities of interest to the fund. An add-on option permits investments into other types of use up to a limit of 30% of the total assets, the manager added.
Warburg-HIH Invest said the predecessor fund, with over €200m capital commitments, has generated an average dividend yield of 11.7% annually.
Carsten Demmler, head of capital management at Warburg-HIH Invest, said that, since the company’s investment strategy is still delivering excellent performance for its investors, “when we continue to believe in the long-term promise of the investment policy, we decided to launch another vehicle with no maturity cap.”
