A happy new year for the German logistics real estate market in the first quarter of 2018
Demand for German logistics real estate remains unchanged. The most important key figures are still impressive: over EUR 1.8 billion was invested in logistics real estate in the first three months of 2018 (Colliers, 2018). This represents an increase of 75%, based on the average of the last five years. The largest transactions in the first quarter of 2018 include the acquisition of the Alpha Industrial portfolio by Frasers Property for approximately EUR 600 million, the sale of six Hermes logistics centers to Frasers Property and the acquisition of nine German Goodman logistics properties by Blackstone for approx EUR 250 million.
Foreign investors continue to dominate the market. Foreign capital is used most in large-volume portfolio deals. According to JLL, the share of foreign investors in the first quarter of 2018 was 77%, almost 20 percentage points above the five-year average.
With regard to the regional distribution of investments, the TOP 7 logistics locations generated just under EUR 750 million, according to BNP Paribas Real Estate. The logistics centers Berlin, Munich and Hamburg were right up there. They have exceeded the EUR 100 million mark. However, the high demand for logistics real estate continues to have a major impact on returns. The yield pressure on premium properties in the TOP-7 logistics locations was particularly noticeable. The gross initial yield has fallen there to 4.65% (Colliers, 2018).
High take-up despite space shortage
An optimistic and dynamic start to the year was also evident in the logistics letting market. Thus, the first quarter of 2018 recorded a total turnover of approx. 1.45 million sqm of logistics space, which corresponds to an increase of 12% according to CBRE. Due to the high demand for space, fewer and fewer storage areas are available. New buildings are often the only way to meet the high demand for logistics space.
The share of new construction / project developments increased in the first quarter of 2018 to almost 1 million square meters, which corresponds to an increase of around 16% compared to the previous year (Logivest 2018). Worth mentioning are the construction of a large distribution center for L’Oreal in Muggensturm (105,000 sqm) and the almost 93,000 sqm logistics property for Action in Peine. More than 84% of the new logistics properties were built in the established logistics regions. The largest new-build volumes of more than 170,000 sqm can be found in the regions of Hannover and Rhein-Neckar. With regard to the user structure, the industrial settlements are in first place with a share of 37%. Trading companies came in second with their new-build share of 27%.
Especially the regions Bavaria, Baden-Wuerttemberg and South Hesse recorded the highest land scarcity in Germany. Without verifiable pre-lettings it is increasingly difficult to find a suitable plot for a new building. The only option is often land that still needs to be developed or that does not yet have building rights, according to CBRE.
Space take-up in the rental market was curbed in the first quarter of 2018 only due to a lack of available inventory. With a share of 31%, 449,500 sqm were realized through lettings. The most important lettings included the leases of LGI in Erfurt (55,000 sqm), Alba Group in Straubing (36,000 sqm) and Nex in Bedburg (25,000 sqm).
Good opportunities for the second quarter of 2018
The demand for modern logistics space will remain high, which will continue to boost new construction activity. Prime rents will remain stable in most regions, but at the same time the trend in some established regions such as Munich or Hamburg is clearly up, which is due to the strong shortage of space and land.
The investment market also promises a positive development. However, due to the high demand for pure logistics real estate, the prime yield can also continue to moderate, which can lead to an increasing demand for highly profitable real estate in the light industrial sector.