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Logistic business
According to Rob Wilkinson, CEO of AEW in Europe,‘fast-changing consumption trends, the growing penetration of e-commerce and new technologies are all reshaping supply chains and underpin the strong yet growing demand for well-located flexible logistics space’.
Net lease is a sector in which investors are often able to secure higher yields than other types of income-focused investments. W. P. Carey, a U.S.-based diversified netlease REIT with a longstanding presence in Europe, and other foreign investors continue to be attracted to sale lease back investment opportunities in Germany.
As foreign capital flows into the region and competition amongst businesses increases, corporate owner-occupiers are turning to alternative capital sources such as sale-lease backs to monetize their corporate real estate and support their long-term operating and financial goals.
A decade or so ago, sale-lease backs in the region were largely driven by Germany’s Mittelstand companies realising the capital tied up in their industrial real estate assets to reinvest in other business initiatives.
This financing tool has since expanded rapidly to corporate offices, technology facilities, logistics and even hotels. The growing availability of net lease capital and increasing recognition of the value created by sale-leasebacks have been key drivers of this development.
For investors well-structured net-lease real estate investments can offer an attractive opportunity for capital preservation and long-term income generation, due to the fundamentals of population growth and generally upwards economic trends.
By working with owners and corporate management, investors are able to develop and structure an economic platform to support their long-term investment objectives and at the same time the future growth needs of tenant companies.
Market drivers have evolved, but the core fundamentals of real es- tate analysis remain central to a successful investment strategy. Location has always been key to ensuring defensible rents and a good investment position down the line.
In order to generate a stable long- term yield as cities expand, successful investors must find locations, like Germany, that will remain relevant over time as demographics and consumer trends change, and the impact of the internet on daily life and business operations continues to grow.
For example, in parallel with the ever-increasing consumer demand for quick deliveries, logistics facilities with multiple floors and small ‘last-mile’ locations are tipped to generate steady long-term yields.
Companies that bought warehouse space in German cities and indeed throughout Europe, ten years ago have reaped the benefits because of the under supply of central locations with these same specifications.
Furthermore, amidst today’s market uncertainty, rising interests rates could be on the horizon. As rates rise, upward pressure on cap rates and borrowing costs is likely, making now a particularly good time to lock in long-term rental rates and maximize capital proceeds.
Despite some concerns that it is late in the market cycle, investors who choose their assets wisely and structure long-term leas- es, say 15-25 years, will usually ride out short-term cycles.
Ultimately, the most important aspect is in the matchmaking process. Owner-occupiers should prioritise investors with the experience and due diligence skills required to understand their businesses in detail and provide customized capital solutions, while securing the most attractive long-term investments for themselves and their shareholders.
