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News Release

Frankfurt

More than €1 billion for logistics and industrial property in the third quarter - the asset class continues its record-breaking run


​Press release including chart [PDF]

 

FRANKFURT, 2nd October 2015 - The transaction activity on the German logistics and industrial property market has been growing from quarter to quarter. After almost €700 million in the first quarter and €950 million in the second, the billion-euro-threshold has now been surpassed: €1.055 billion was invested in this asset class between July and September. Thus the transaction volume totalled €2.7 billion for the first three quarters of the year, equating to a 20% increase year on year. Compared to the five-year average, the volume increased by as much as 84%. Based on expectations of an equally strong final quarter, 2015 is once again heading towards a new transaction record that would exceed last year’s result (€3.6 billion). “How close we will come to the €4 billion mark depends on whether the deals currently under negotiation will take place before the end of the year,” said Willi Weis, Head of Industrial Investment Germany at JLL.
 
Foreign capital sources made up the biggest share of the nine-month volume in 2015, accounting for €1.9 billion. Of the six largest deals, Asian investors were responsible for five. Already in recent years, the logistics property investment market has become increasingly international in character. Three years ago, the share of foreign investors was just 44%, but this increased to 51% in 2013 and 65% in 2014 - a level that also applies to the current year. The logistics property investment market also has a stronger international character than investment markets for other property segments. Across all commercial property investment classes, the share of foreign investors is much lower at 54%. “The German logistics investment market has been driven by foreign capital for a number of years. New investors, such as those from the Asian region, are increasingly crowding into the market in the search for good investments. At the same time, they are no longer coming into the market with “only” €200 million-€500 million to invest, but with sums running into billions, much of which is pension funds,” said Weis. Most transactions are realised without conditions on financing and normally with a much lower LTV than was usual in 2008. “At the same time, equity capital is much more sensitive to risk in contrast to borrowed capital. This raises the pressure on good and very good logistics investments. In the current financing environment with limited alternative investment options and Germany’s continuing attractiveness as the engine of Europe, a weakening of this situation is not to be expected,” said Weis.
 
Three months before the end of the year, individual transactions amount to €1.75 billion and have already exceeded the volume for the whole of last year. Included here is the sale of the H&M logistics centre in Hamburg-Allermöhe to a South Korean investor. Already in early 2015, Asian capital was invested in the purchase of the 80,000-sqm central warehouse of Robert Bosch GmbH in Worms.
 
Portfolio sales accounted for 35% of the transaction volume in the logistics sector in the first nine months. This is comparable to the average for all asset classes (33%).
 
The very high demand for logistics and industrial property by investors from both the domestic and foreign markets continues to lead to further price rises and therefore falling initial yields. The average value for the Big 7 is 5.37%, which is 15 basis points lower than three months previously and as much as 91 basis points down on the same period of last year. In no other property investment class has such a strong decline in yields been evident. Prime yields for individual transactions are only being achieved in core locations with long-term lease contracts and creditworthy tenants: “In addition, between 5-7% is being paid for logistics portfolios with good logistics properties and volumes of above €80 million,” said Weis. He added: “We have not noticed increases in yields on this scale for core-plus and value-add products.” This is why investor interest is not only directed at the increasingly short supply of core properties: the figures show that 46% of the volume in the first three quarters related to core transactions while at least 37% took place in the core-plus segment. Value-add products (for example, properties with more vacancies and shorter lease terms) accounted for a share of 17%. “In such investments buyers expect even stronger potential to increase value through lettings, restoration or renovation,” said Weis.
 
“In the meantime, logistics property has finally emerged from the shadow of other asset classes. A return to former times is almost inconceivable as many different types of investors are already comfortable with this segment today. The attractiveness of the logistics market, with steady lettings volumes in the last 10 years, stable rents and extremely low vacancies in almost all locations, lies in its solid foundations and continuing growth through diversification and outsourcing in production and retail. In addition, the short development times and therefore fast reaction times mean that an excessive oversupply is not likely to occur even in declining markets,” said Willi Weis with confidence.