A new warehouse building
Logistics and industrial properties look like they will be the only asset category to be showing positive rental growth - ahead of the rate of inflation - in Germany this year based on new figures from the first intra-year IWIP forecast from sector specialist IndustrialPort.
The IWIP Index, the industrial and logistics real estate index jointly managed by think tank IW Cologne and IndustrialPort, sees full-year 2023 rents for German warehouse, logistics and production properties rising by 2.6%.
Not all sub-sectors will perform equally. Logistics, for example, should rise by 7.2%, with production properties seen as the weakest rental sector, up only 1.8%. This is viewed as a reflection of the level of deindustrialisation, much heralded in economic commentary, that is making its presence felt throughout the country at a local level. With the ifo Institute forecasting overall inflation in the economy of 5.8% for 2023, only the logistics sector will show positive real rental growth this year.
Market sentiment towards large warehouse-style properties is, however, deteriorating. Respondents to the latest survey show a clear dip in their enthusiasm for large sheds. In Q4 2022 respondents viewed the sector 16% good, 74% satisfactory, 10% poor - now, just six months later, they view it 18% good, 58% satisfactory, 24% poor. That's quite a slump.
The cause of this is probably the double-digit drop in sales in online retailing - now suffering significant sales losses for the second year in succession. Also, the drop in orders from German industry, production relocations abroad, reductions in the breadth of the product range in the food industry, purchasing restraints due to inflation-related real wage losses, and the perceptible rise in deindustrialisation, as reflected record capital outflows from Germany.
All of this is measurable through lower cargo volumes at Frankfurt Airport, the European hub with the highest throughput, or, for example, lower container throughput at the Port of Antwerp - Europe's second largest port. The Port of Hamburg, Europe's third-largest port, has even short-time working announced retroactively to May 1, for the same reason.
About 58% of respondents said they expect vacancy rates to rise, a sentiment underlined by a rise in subleased space, which at the halfway point was already at the level of all of last year. Vacancy rates are still low, but with little speculative project development, the pressure will be for rents to rise, a fear that is preventing users from moving, and hence lowering transactions.
Most respondents see the upward trend in yields continuing - 42% see further rising yields, compared to 26% six months ago. But interestingly, 36% of respondents are expecting yields to fall, as against 21 half a year ago, suggesting a lot of uncertainty in the market.
REFIRE: IndustrialPort comes to the not-unreasonable conclusion that the current availability of data is no longer fully capable of delivering an accurate picture of the state of the market. The effect of disruptive technologies and new business models, along with greater supply chain complexity and heavier operational pressure for results means that identifying comparables is now much more difficult. Deeper integration with other database tools - such as from the firm's HR department - will be needed for more meaningful decisions in logistics investments. Given that this kind of consulting service is what IndustrialPort provides, this conclusion probably comes as no great surprise.
