Florian Glock
Karsten Jungk - Wüest&Partner
‘In just two years, the so-called ‘baby boomer’ generation will gradually come into retirement age so, demographically, there will be an extraordinarily high demand for new care facilities by 2050,’ said Karsten Jungk, managing director and partner at Wüest Partner Germany.
Logistics transactions soared by 80% in Germany last year, setting a new record high, Karsten Jungk, head of Wüest Partner in Germany, told REFIRE this month.
Around €8.7b in logistics were transacted in Germany year, according to Wüest Partner’s report, ‘German investment market 2017’, published this month.
‘The 80% increase in logistics sales year was more than expected but not completely surprising given the increase in online shopping and that textile retailers on the high street are not performing as well as they were,’ Jungk said. ‘We know of one big well-known clothing retailer who used to be an anchor tenant and who would often pay higher rents as a result. Now, they are a less important tenant and their rent has decreased by 50% because it’s linked to their revenue, which has fallen a lot. They don’t have the same footfall anymore. Investors are looking for high yielding investments and as long as online retail continues to perform well, logistics offers just that.’
Some analysts are now forecasting that the deal volume could hit the €10b mark this year, given that demand shows no sign of abating. As a result, prime yields in the ‘Big 7’ have fallen by 50 bps to 4.5%, Jungk said. Prime rents remain around the €6.75 per sqm mark.
Logistics in cities such as Frankfurt and Berlin currently offer the best investment opportunities, Peter Salostowitz, CEO of German data provider IndustrialPort told REFIRE earlier this year. IndustrialPort has created a logistics ‘heat map’ with Savills, to track the best investment locations.‘’For investors looking to invest in German logistics this year, one option could be to invest in logistics spaces close to big cities. In our ‘heat map’,, we think it’s safe to invest in any of the ‘green’ areas, which includes Frankfurt, Berlin, Leipzig, Munich, Stuttgart, Hamburg and Dortmund.
There is a need for more logistics space near big cities, especially given that more and more people are moving there, he added. Part of the problem is that apartments are being built along Germany’s rivers or former industrial areas where previously there were a lot of warehouses. Those warehouses are being lost.
Last year was a record year for industrial properties in Germany, according to the Cologne Institute for Economic Research’s latest report in conjunction with IndustrialPort. Analyzing around 11,500 properties totaling 100 million sqm between 2012 and 2017, the IWIP Index has risen from 100 in 2012 to 120.6 in 2017. This represents an increase of 9.7% on 2016 on the back of strong demand for logistics.
Office vacancy rates fall to record lows
Office vacancy rates have fallen to record lows in the ‘Big 7’, according to Jungk, due to an increase in demand for space against a backdrop of not enough supply. ‘The vacancy rate in Berlin is just 2.3% and it’s less than 3% in Munich as well. It’s so hard to find new space in many cities that a company in Berlin, for example, may find it easier to develop their own building, or to hire a developer to do it.’
Co-working is a very big trend at the moment and growing rapidly in Berlin. ‘Office landlords have to accept, going forward, that they won’t have big ticket tenants or classic layouts – they will need to adapt to co-working. Large landlords are also considering offering co-working space,’ Jungk said.
For investors unsure of which assets to tap in the current climate, Jungk said that B cities are still interesting as are B locations in A cities, the classic ABBA approach. ‘However, investors need to have the right asset management team on the ground. Offices are still a good bet in these locations, or even office to hotel conversions or office to resi schemes.’
