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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’.
Demand for logistics real estate will continue to grow over the next three years in Europe, despite the threats by Brexit and global trade disputes, while yields are expected to fall further, delegates at a lively discussion – “The Future of Logistics Real Estate in Europe” – heard. The event, hosted by trade publication PropertyEU, was sponsored by Buck Consultants International and Logistics Capital Partners (LPC).
Rene Buck, CEO of Buck Consultants, forecast that demand for logistics real estate will continue to grow over the next three years, driven by moderate economic growth and the inexorable rise of e-commerce sales.
With vacancies decreasing and traditional logistic hotspots struggling with a shortage of new supply, tenants will have less choice between existing available buildings or new greenfield sites.
‘Labour availability has become a critical location factor for manufacturing companies, e-tailers and logistics services providers when considering a new distribution centre,’ said Buck, drawing on the firm’s data and Regional Labor Market Assessment Tool. While on the macro environment, Buck said, ‘For the next 5-10 years, intensifying trade disputes between the major trade blocs in the world (US, Europe, China, Asia) could hurt the logistics real estate market substantially.’
Still, the higher yields available on logistics properties (at about 6%) still make the asset class more attractive for many investors than than investments in offices or retail real estate (between 4% and 5%, at best).
A new note on the logistics sector issued this week by German consulting group and investment manager Realogis also supports the argument in favour of further sustainable growth in the sector in Germany through 2019.
Oliver Raigel, managing director at Realogis, commented: “As the previous years have shown, the level of take-up will depend on the quantity of large-volume portfolio transactions. We generally expect that the result achieved in Germany in 2018 can also be repeated this year. To our knowledge, at least two major portfolio deals with a transaction volume of more than €500 million each are currently in the pipeline. At the same time, many mid-sized manufacturing companies are looking into selling their operational properties via sale-and-lease-back transactions. It is also still the case that many properties are being sold after having achieved their business plan ahead of schedule due to the good market conditions in recent years”.
His colleague Clemens Kercher, also a managing director at the company, added: “We estimate that the prime yield for trophy properties could fall to 4.00% and reach a floor level there. However, the situation should be different in the light industrial property segment, where we expect prime yields to decrease slightly just below 5% this year. There are signs of a significant increase in rents for these properties, particularly those close to major metropolitan areas in Germany. This may subsequently put the higher purchase price factors into perspective in some cases.”
In January 2019, the prime gross yield on trophy properties at the top locations* with a minimum term of 10 years (fully indexed) and with triple-A tenants has fallen by 20 basis points and now comes to 4.20% (industrial and business parks 5.00%) according to Realogis. For logistics and industrial properties and for industrial parks and business parks with an above-average lease term the gross yield comes to 4.50% (industrial parks and business parks 5.25%) and for medium lease term to 4.80% (industrial parks and business parks 5.60%).The shortage of space at top locations is constantly increasing, causing prices in the light industrial/business park segment to rise. Furthermore, land prices have almost doubled in the past three years and have thus moved far apart from the standard land values. At the same time, the allocation guidelines have changed in most municipalities. This makes purchases more difficult for developers who want to engage in speculative construction – even though the sector urgently needs this, says Realogis.
New research from Real Capital Analytics (RCA) shows that European warehouse investment volumes hit an all-time high of €28bn in 2018 on the back of the e-commerce and logistics investment boom. Logistical warehouse investments have grown by an average of 14% a year since 2013, easily outstripping the expansion in the overall real estate investment market.
According to RCA data, investments into the top 10 European markets have grown by an average of 21% per annum in the past five years, outpacing the wider market. Excluding CIC’s €12.2bn acquisition of Logicor in 2017, last year’s volumes show a peak for European warehouse investments as a whole.