By Sara Seddon Kilbinger, Senior Reporter
Indexed rents seen as stabilizing factor against a backdrop of high inflation
Germany’s logistics sector is showing no signs of slowing down, with a number of big funds in the pipeline, as investors target an asset class that is widely viewed as being a safe haven during turbulent economic times.
Just this week, German logistics specialist GARBE Industrial Real Estate GmbH announced that it had raised around €400 million in equity among German and international investors for its investment fund, “GARBE Logistics Real Estate Fund Plus III” (GLIF+III). The Luxembourg special AIF (SICAV-RAIF) without maturity is an Article-8 fund with a manage-to-ESG strategy. With a planned investment volume of €5 billion, it marks GARBE’s largest pan-European fund for institutional investors to date.
Garbe’s new logistics fund will invest in established logistics sites across Europe as well as in selected growth regions, in some cases pursuing value-add and development strategies in addition to its main core-plus strategy. The focus of GLIF+III is on logistics assets in the core-plus segment, with an add-on component of selected core and light industrial properties. The strategy is supplemented by property developments and value-add properties. It targets a net cash-on-cash return of 4% p.a. and an internal rate of return (IRR) of 7% p.a. – it has a minimum investment amount of €10 million. Its seed portfolio consists of 22 assets with an investment volume of more than €650 million and about 400,000 square metres of lettable area. In total, 21 assets are in Germany and one is in Poland, all with an occupancy rate of 95% and a WALT of more than ten years. In addition, over €1 billion worth of assets remain in the pipeline for GLIF+III and a second closing is planned before the end of this year.
“We set up the GLIF+III during a very challenging market cycle,” said Christopher Garbe, managing partner of GARBE. “On the part of our clients, it is a remarkable sign of confidence in the logistics real estate market…this represents a strategic milestone, and is the result of our active European expansion strategy. The GLIF+III combines our entire management competence while opening our platform up to international institutional investors.”
Jan Philipp Daun, Managing Director of GARBE, added: “Due to their indexed rents, logistics properties act like a stabilizing anchor during times of crisis and offer a maximum in protection against value erosion due to inflation. It has been a lessor’s market that offers us a reliably strong demand for logistics space everywhere in Europe, meaning both in primary and specifically in secondary locations, and we are aware of additional rent upside here. You need to remember that rents - making up 5% of the overall costs - play a negligible role in the logistics industry in general and for our clients in particular.”
Changing customer behaviour fueling demand for logistics space
Other fund managers are also targeting logistics. Earlier this year, Italian asset manager DeA Capital Real Estate’s German arm launched its UrbanMile Fund, a new European investment vehicle targeting a size of €700 million. The vehicle is focusing on inner-city logistics assets in key European cities. The fund, which will have a gearing below 60%, is targeting a distribution yield over its ten-year term of 5.5% per year with a core plus/value-add risk profile.
“The growing e- and Q-commerce market as well as the tightening requirements due to climate policy will have a major impact on access to city centres,” said Dr. Wolfgang Speckhahn, managing partner DeA Capital Real Estate Germany. “The changing customer behaviour towards short delivery times well below one hour from order as well as the foreseeable limited access to city centres for exclusively small-scale transport systems with electric drive will require new, central logistics solutions. Inner-city areas for micro-logistics use are gaining in importance, especially in European metropolises.”
Logistics take-up in Berlin hits new all-time high
One city that is flourishing is Berlin, reaching an all-time high with logistics take-up of 785,300 square metres in the first half of 2022, according to a report published earlier this month by Realogis, a consultant for industrial and logistics properties and business parks in Germany. As such, take-up almost tripled year-on-year with growth of 172.3% (H1 2021: 288,400 square metres).
“The level of this record figure is due to the Tesla deal for 327,000 square metres in Grünheide in the first quarter of 2022,’ said Ben Dörks, managing director of Realogis Immobilien Berlin. “But even without this deal, the first half of the year would be the strongest ever recorded at 458,300 square metres, which is 58.9% higher than the previous year’s figure,” he added.
The annual average for the past five years in Berlin is currently 335,840 square metres, and the development in the first six months was also exceeded by an impressive 133.8%. “The Tesla deal alone would almost be enough to reach the five-year average in Berlin,” Dörks said. Business parks accounted for 59,000 square metres or 28 deals. Realogis defines a business park as a contiguous business district that is developed and implemented by private enterprises with a uniform concept and whose infrastructure is used jointly by the companies based there.
Squeezed margins and rising interest rates putting dampener on volume of bids
However, the market is not without challenges. A year ago, it was normal to have 25 bids, different rounds of bidding and higher prices for an asset, but this year that has stopped, according to Marcus de Minckwitz, head of EMEA Industrial & Logistics at Savills. Rising costs for materials, transport and labour are squeezing margins, while rising interest rates are making financing more expensive. Geopolitical risk is also making it easier to lenders to say no.
Nonetheless, the challenging environment is not stopping mega deals going ahead. In February, The Blackstone Group completed the largest private real estate transaction in Europe with the recapitalisation of Mileway, its European logistics platform, for €21 billion.
Over the past six years, Blackstone and Mileway’s management team have grown the company into the largest last mile logistics portfolio in Europe. Today it comprises over 1,700 last mile logistics assets, amounting to 14.7 million square meters across 10 countries.
“Together with the Mileway management team, we are proud to have built a premier portfolio of European, last mile logistics properties in the most sought-after locations,” said James Seppala, head of Real Estate Europe, Blackstone. “Logistics is one of our highest conviction themes globally and the sector continues to prove its resiliency and strong growth potential.”
