German industrial and logistics property specialist Realogis released a very useful study wrapping up the letting and investment market for the year in the sector. The key takeaways were that a) transaction volume for the full year is likely to have reached €7bn, putting it on a par with 2018 despite tightening economic conditions, and b) the prime gross yield for logistics properties remains where it was at the beginning of the year, at 4.20%.
The focus throughout the year was on portfolio transactions for more than €70m and individual transactions for more than €20m, with – in the case of individual transactions – more weight given to the actual location of the property than in the portfolio deals.
According to Bülent Alemdag of the Realogis investment team, “By contrast, contract terms are becoming less and less important – in both individual and portfolio deals. Investors are currently prepared to accept short or medium contract terms without this resulting in any major price discounts.” With rental markets strong, with most properties fully occupied, this is understandable.
In the first eleven months of the year (January to November), portfolio deals of about €2 billion made up almost 40% of the transaction volume. The biggest individual transactions of the year include the sale of a Hermes logistics centre in Ansbach in Bavaria for €100m. In Mönchengladbach, the French investment manager La Francaise bought an Amazon logistics centre from the project developer Ixocon on behalf of South Korean investors Samsung Securities and KB Securities. A big box logistics centre in Eschweiler near Aachen, managed by logistics service provider Hammer, also changed hands. The property with total space of 105,000 sqm was developed by Garbe and sold to Union Investment. In addition, a last-mile logistics centre in Berlin was sold to Barings through Realogis.
Clemens Kerscher from the Realogis investment team commented on a new paradigm shift in the sales process: “In previous years, the purchase was often negotiated with potential interested parties with no fixed schedule. In 2019, the majority of logistics properties, industrial estates and business parks in Germany have been marketed through a structured bidding process managed by a consultant.”
The weight given to properties’ ages and to the length of the lease terms is also changing. Realogis’s Oliver Raigel said: “Since there are so few investment opportunities on the market at the moment, it essentially doesn’t matter whether a property is five or ten years old – if all requirements placed on modern properties have been met. This is also the case when it comes to lease terms. At present, the same prices are being paid for a 7-year WALT as for a 10-year WALT, provided that all other aspects are identical or similar.”As to who’s doing the buying: German investors (51%) have now overtaken their foreign counterparts – albeit only just – due primarily to the smaller number of opportunities for package deals. At the same time, German family offices have been extraordinarily active in the segment priced at “up to €20 million”.“For the first time in a long time, the yield for prime products has remained stable at 4.20%, the peak level seen at the beginning of the year,” says Kerscher. As such, in the current environment, investing in prime properties remains very attractive for investors.However, the Realogis researchers say yields are expected to reach the 4.00% mark in the short term, and are likely to fall below this point in the coming months.
This is partly due to the low availability of premium products that meet all requirements placed on new-build properties in terms of facilities, where the tenant has an AAA credit rating and the sale price is over €30 million. These requirements include a warehouse height of at least 10 metres, one gate per 1,000 sqm, DGNB Gold certification, a ground load-bearing capacity of over 5 tonnes and an ESFR sprinkler system.
Also notable is the fact that there is barely any appreciable price difference between standard and prime properties. “Many investors are prepared to pay core prices for non-core properties,” says Clemens Kerscher.The prime gross yield for the latest-generation business parks, situated in one of the top locations with a minimum term of ten years, has declined by 0.2 percentage points or a loss of 4% compared to January (5.00%) and now stands at 4.8%.
“As reported, the lease term is now becoming less and less important, as is reflected in the peak gross yield for industrial estates and business parks with an above-average or medium term duration,” says Bülent Alemdag. The yield in both cases is 5.00%. The decline in the first case stands at -4.8% (yield in Jan 2019: 5.25%), but is in fact already -10.7% in the second case (yield in Jan 2019: 5.60%).
