Palmira Capital Partners GmbH
Alexander Hoff - Palmira
Alexander Hoff, Managing Partner, Palmira Capital Partners
Germany is the next ‘up and coming’ self-storage market, according to Russell Jordan, CEO of Self Storage Plus Germany, speaking at the TCO round table discussion in Berlin earlier this month.
‘The progress that has been made in the self-storage sector very recently is a real breakthrough for us,’ Jordan said. ‘It is something I have been waiting for years for. Germany is the next ‘up and coming’ self-storage market; the rest of Europe is pretty saturated.’
According to Jordan, ‘all the indicators are that self-storage can deliver the yield investors are looking for - 5%’: ‘As an operator looking at the players that are already here, the new breakthroughs in technology give us a huge competitive edge coming into a new market. This is because we can now offer 24-hour instant storage. The digitalization goes hand in glove with the new type of potential tenant who want instant solutions. So they can have access 24 hours a day and we can rent online 24/7.’
Yields have been getting lower and lower historically as self-storage becomes a known and safe asset class, according to Jordan. ‘I think we have seen that in most of Europe. It has always been the case in America. But cap rates on recent transactions that are available get down to about 5% on anything that’s getting sold in the self-storage market, so that’s a great development.’
However, as the yield gap between offices and logistics narrows, investors should be cautious, warned Paul Muno, head of capital relations and Germany at Principal Real Estate Europe.‘Whenever I see the yields for logistics real estate nearing those for offices - as they are right now - it concerns me. I think that we should all be cautious. We have looked at the CEE logistics market and we will continue to look for opportunities there, particularly in Poland. Right now, it is a very interesting market for those looking to invest in logistics and light industrial real estate.’
Palmira Capital Partners’ founder Alexander Hoff agreed with Muno that prime logistics yields have reached unprecedented levels. ‘I’ve been dealing with industrial real estate for almost half my career and if you had to ask me five years ago whether I would be anticipating yields for prime logistics going so far I would have started laughing. Is that still a healthy market? Is that the right kind of yield? But I agree with Paul to think that it’s going to be stable for the next 12 to 18 months.’
Other investors are shifting their logistics focus. Palmira Capital Partners doesn’t differentiate between logistics and light industrial, according to Hoff, but it is expanding into new markets: ‘We have always been focused on Germany, Austria, Slovakia, Poland, Benelux and Spain. Now we are moving into Portugal and maybe to the Czech Republic.’
Low interest rates boosting market
For investors, the good news is that we are stillin an environment with relatively low interest rates, according to Rodney Bysh, CEO at Cording Real Estate Group. ‘I do not feel like they will be really shooting up soon,’ he said. ‘We are also in an environment of, let us say, not high but stable economic growth. So my sense is that unless we have a global shock or the world begins to feel a little less stable than it was, for the time being we are probably going to be alright for the next year or two.’
Challenges ahead
Brexit aside, there are other challenges ahead. For Bysh, investors chasing yield can ‘make rash decisions, they don't price risk properly, so some people will make mistakes’, he warned. ‘The number of good opportunities available is obviously much larger, so I think that the people who will make money are the people who really understand the micro deal but you are going to have to look a lot harder to find those deals.’
For Jordan, self-storage is the latest in a long line of niche products, including student housing and micro residential units. ‘There’s a lot of money changing hands and what I have heard from investors is that opportunities were scarce because there weren’t a lot of experienced platforms or management teams available to do the operation end of the business in all three of those sectors. So I think value is definitely a niche.
“Talking about self-storage, I think we can generate some good value for our investors there. And, actually, self-storage thrives in a volatile environment, whether it is boom or bust. In 2008, in the crash, the only stocks that went up in the US and the UK were the self-storage REITS because the analysts on Wall Street said there are going to be so many loan foreclosures per block in every city, they're going to be thrown out of the house, so they're going to need storage. So it’s proven itself as anti-cyclical. It’s a safe haven, so there's value as well. It is a great product.’ (ssk)
