Logistics investment market delivers record result in the first half year
Investment volume at €1.8 billion in the first half-year – increase of 29 percent year-on-year
Brisk market activity outside the traditional investment centres – Munich as the strongest market of the Top 5
Portfolio acquisitions dominated by foreign investors – local investors focus mainly on single transactions
Prime yield slips 20 basis points to five percent
The transaction volume of warehouse and logistics properties reached a new record high of €1.8 billion in the first half of 2016. This is the conclusion drawn in a current analysis prepared by commercial real estate services company CBRE. Compared with the strong prior-year figure, the investment volume has risen by almost €420 million (29 percent). Record figures were reported for allocated volume as well as for the number of deals.
The growth in Germany’s logistics investment market is clearly illustrated by the increase of one third in the number of transactions now to more than 160 deals compared with the year-earlier period.
Even though the funds of around €761 million invested in the warehouse and logistics property market have declined by 30 percent in the last three months compared with the start of the year, this is in no way attributable to the German logistics investment market’s lack of appeal.
“Following an unusually strong start to the year in the first quarter, driven by a well-filled pipeline from the year before and the many available investment opportunities, this development was foreseeable.” The current quarterly figure is still substantially higher than the average quarterly results from the past six years.
From a niche product to a popular asset class
Germany has a global reputation as one of the safest investment havens and target markets and enjoys increasing popularity with domestic and international players alike. The relative share of the warehouse and logistics asset class in the overall investment volume had exceeded ten percent by mid-year, representing a growth of more than four percentage points compared with the strong result in the year-earlier period. “This asset class has established itself with institutional investors, which has made our domestic warehouse and logistics market one of the most desirable investment targets in Europe,” Linsin says. “Not least owing to the attractive yield spread of up to 140 basis points compared with traditional asset classes, warehouse and logistics properties have evolved in recent years from a niche product into one of the most popular asset classes.” Similarly, greater interest through online trading in Germany as a logistics-affine production location and the associated restructuring of the retail value chain have had a positive effect.
Brisk market activity outside the investment locations
The downtrend in the investment volume persisted in the traditional investment locations of Berlin, Düsseldorf, Frankfurt, Hamburg and Munich. “While in 2010 one third of invested capital was still accounted for by the Top 5 cities, a mere 15 percent of the entire logistics investment volume, or around €284 million, were allocated to the top locations in the first half of the current year,” Linsin explains. “A major part of just under €220 million, almost exclusively transacted in the form of multiple single transactions, was attributable to Munich.” At the same time, an increasingly larger proportion has been reported outside the top locations in recent years. “Planned warehouse and logistics properties compete with other usage types, above all in areas close to the cities, and therefore continue to weigh on supply, particularly in the Core segment,” Oulds states. “Consequently, we are seeing a trend towards the environs or other interesting investments locations that are increasingly attracting the attention of investors as well as users. A look at the local communities surrounding the top locations and therefore the respective logistics markets shows that, with the exception of Düsseldorf’s logistics market, the figures in all top logistics market regions are considerably higher year-on-year. Funds allocated to warehouse and logistics properties totaled €695 million in the top logistics markets and were largely realized through portfolio assets in the environs, particularly in logistics market areas in Düsseldorf and Frankfurt,” Oulds explains.
Foreign investors tending toward large portfolio acquisitions
In terms of transaction types, market activity proved to be very balanced in the first six months. The distribution of investments transacted in terms of numbers and capital committed reveals a more even picture compared with the first six months of 2015. In the first half of 2016, the portfolio ratio stood at 54 percent (first half of 2015: 41 percent) and the sale of individual properties therefore accounted for 46 percent (first half of 2015. 59 percent). This change is mainly attributable to the increase in portfolio disposals. An amount of €917 million (up €328 million year-on-year) was invested in over 70 transactions (47 transactions more than in the prior year period). “It is interesting to note that domestic investors are increasingly selecting single properties, as opposed to foreign capital where around 78 percent went into the German warehouse and logistics investment market through acquiring portfolios,” Oulds comments. A good example in the second quarter was the acquisition of a stake in the portfolio of European logistics real estate held by Goodman for a triple-digit million sum by Gramercy Europe, a U.S. REIT. Despite the high number of transactions of North American players, the logistics investment market is dominated by European investors who accounted for approximately €1.2 billion, equivalent to 65 percent of the transaction volume, followed by players from North America in second place with €633 million.
Asset and fund managers as the strongest net buyer group
In particular, asset and fund managers with their sound capital base were the strongest net buyer group in the first six months. They bought warehouse and logistics properties worth €498 million while selling properties worth only €83 million, which puts them top of the league, marginally ahead of listed property companies and REITs. Insurance companies and pension funds took third place. “Particularly traditional institutional investors, such as insurance companies as well as company and private pension funds, are increasingly turning to logistics as an asset class in order to increase their real estate allocations. Institutional investors have set their sights first and foremost on investment property with long term leases in urban areas,” Linsin says.
Growing demand ensures a decline in prime yields
At the beginning of the year, Germany’s logistics investment market benefited from exceptionally favourable market conditions. “Strong demand by domestic and international institutional investors for German warehouse and logistics properties that are in short supply has driven purchase prices up, which has placed some pressure on investment activity,” Oulds states. “This gives rise to the further compression of the prime yields for top logistics properties in established locations.” Owing to the pressure on the supply-demand situation that is in any case, tight, prime yields for logistics properties featuring modern fit-outs and let long term in the established top logistics markets of Berlin, Düsseldorf, Frankfurt, Hamburg and Munich stand at 5.00 percent (down 20 basis points compared with the previous quarter). “We anticipate that the net initial yield will initially stabilise due to brisker investment activity in Core properties,” Linsin says. “Within the past 18 months we have seen prime yields declined by 100 basis points in the top locations, signifying a compression of yields that is twice as high in comparison with the traditional office asset class. The yields of warehouse and logistics properties are nevertheless extremely attractive for investors, so we therefore anticipate that the volume of capital invested in this asset class will remain high in the second half of the year,” Linsin comments.
Outlook: potential for an investment volume of more than €4 billion
As one of the world’s most important safe havens for property investment, with attractive economic framework conditions and a stable property market, Germany is considered an attractive market for both domestic and international investors. “Thanks to the stable economic situation in Germany, we expect a dynamic trend in the logistics investment market in the second half of the year. Many investors view Germany as a safe haven in times of growing uncertainty so that we can expect an increase in the funds invested against the backdrop of an increasingly risk averse investment strategy,” Linsin concludes. “On the one hand, current mandates are still in the selling process and, on the other, there are several single properties in the pipeline, along with portfolios in the triple-digit million range,” Oulds says. “Should these transactions be realised in the current year, we anticipate a year-end result that could exceed the four billion euro threshold for the first time.”
Logistics investment market in Germany
Source: CBRE Research, Q2 2016.
German logistics investment market – y/y comparison
Source: CBRE Research, Q2 2016.
Kai F. Oulds
Head of Logistics Investment
+49 (0)69 17 00 77 33
Dr. Jan Linsin
Head of Research Germany
+49 (0)69 17 00 77 663
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2015 revenue). The Company has more than 70,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 400 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.