•  Historical high of around €4.5 billion in transaction volume
• Sustained product shortfall in the top locations – shift towards locations outside the Top 5 cities
• Asset and fund managers as the strongest buyer group – growing interest of insurance companies and pension funds
• Prime yield falls below the five percent mark

The investment market for German warehouse and logistics properties exceeded the respective year-earlier result for the sixth year in a row and has closed the year 2016 with a new record result. Overall, warehouse and logistics properties worth €4.5 billion have changed hands over the last twelve months. This is the conclusion drawn in an updated analysis prepared by commercial real estate services company CBRE.

The previous year’s result was outperformed by €544 million, equivalent to 14%. “We have seen a particularly brisk year-end rally. With transaction volume of some €1.6 billion, we closed the very dynamic year with the best quarterly results ever recorded,” says Kai Oulds, Head of Logistics Investment at CBRE Germany.

Logistics properties enjoy increasing popularity

The logistics segment has become increasingly important in the last few years. At year end, the real estate asset class of logistics properties accounted for 8.5% of the entire commercial investment volume. “The highest share achieved since the last cyclical peak impressively underscores the greater interest in logistics properties of domestic and international investors who are desperately searching for investment opportunities in Europe's largest economy and production centre,” explains Jan Linsin, Head of Research at CBRE Germany.

Growing transaction volume through portfolio acquisitions

Market activity in terms of transaction type proved to be particularly dynamic. Whereas trading in single properties with a transaction volume of €2.4 billion only marginally exceeded the year-earlier level, the business of buying portfolios reported revenues which were around €444 million higher year on year. All in all, 47% of the investment volume amounting to €2.1 billion were attributable to portfolio sales. The segment of portfolio transactions as well as single acquisitions were largely determined by deals in the mid-size volumes of between €20 to 50 million and €50 to100 million.

Domestic investors very active

Following a period of three years, German investors proved to be more active on the logistics investment market again. Compared with 2015, they raised their investments by €890 million through single acquisitions in particular. With €2.4 billion of allocated capital, domestic players accounted for around 53% of the transaction volume. “The participation of international players at 47% nonetheless remains at a very high level. The proportion of foreign investors is only higher in the hotel investment market,” Linsin comments. International investors, however, prefer to channel their funds into buying portfolios in the German logistics investment market. “Above all, international institutional investors are using large-scale portfolio transactions to secure existing properties with partly long-term rental agreements, and therefore stable income streams,” Oulds explains. Seven of the ten largest portfolio deals were transacted by international players. Among other deals for instance, Singapore’s GIC government fund – advised by CBRE – acquired P3 Logistic Parks in the context of a €2.4 billion corporate takeover from TPG Real Estate and partner Ivanhoé Cambridge, including all logistics properties in Germany that were part of P3’s pan-European portfolio. Accordingly, international property investors are even in the majority in terms of portfolio acquisitions, with a share of around two thirds. The largest share of 21% (€929 million) was attributable to North American investors, followed by players from countries outside Germany which, on the buyers’ side, together already accounted for €667 million (15%).

Insurance companies and pension funds as the strongest net buyer groups

In terms of buying logistics properties in Germany, cash-rich asset and fund managers showed great interest. With an amount of €1.3 billion, they contributed up to 28% of the overall logistics investment volume. Insurance companies and pension funds invested €950 million (21%). Over the past year, they sold logistics properties worth only €24 million, thus proving to be the strongest net buyer group. “This clearly illustrates the widening of the investment scope to include logistics as an alternative asset class by traditional core investors whose real estate portfolios have so far comprised office properties and commercial buildings in the investment centres,” Linsin stated. “In view of the sharp yield decline of the established asset classes and very low alternative interest rates on the bund market, the change in strategy is more than justified,” Linsin continued. Third place was taken by the group of open real estate and special funds (€751 million).

Prime yields for logistics properties below five percent for the first time

“We have observed a growing interest on the part of all investor groups in long term let properties in the German warehouse and logistics market, which coincides with a lack of sufficient core products. Properties with shorter rental contracts and outside the top locations have long been no hindrance to investment,” Oulds explains. Consequently, the rising pressure on net initial yields for prime properties in the established top logistics market areas of Berlin, Frankfurt, Hamburg and Munich has caused further yield compression of ten basis points to 4.90%. “Measured against the traditional office and retail real estate asset classes and fixed income securities, investing in logistics real estate remains extremely attractive, delivering a yield spread of up to 170 basis points,” Linsin explains.

Outlook: investment momentum expected to continue

The demand of domestic and foreign players for German logistics properties is set to continue in the coming year. “The scarce availability of core property in the established markets will direct the attention of investors to locations outside the Top 5, particularly as these also offer interesting investment opportunities,” Oulds predicts. The success story can be expected to continue in the coming year as well, with a transaction volume commensurate with the current dynamic development.

Industrial & logistics transaction volume in Germany 

Source: CBRE Research, Q4 2016.

German logistics investment market – y/y comparison

Source: CBRE Research, Q4 2016.

Contacts:
Kai F. Oulds
CBRE GmbH
Head of Logistics Investment
+49 (0)69 17 00 77 33
kai.oulds@cbre.com