German logistics investment market continues to boom
Press release including chart [PDF]
FRANKFURT, 6th April 2018 – The boom on the German investment market for logistics and industrial real estate has continued into the first quarter of 2018. The €1.46 billion that was invested in the first three months represents the second strongest start to a year after the record result in the previous year, which was boosted by the Hansteen portfolio mega deal. Thus, the one-year decline in the transaction volume (-27%) is by no means synonymous with a slump in activity in this asset class. In a longer-term comparison of all first quarters, the Q1 result is 35% above the five-year average and double the 10-year average. Logistics property continues to account for a double-digit percentage of the total commercial property transaction volume (12%). In relative terms, this is at least a third higher than the average for the last ten years.
Willi Weis, Head of Industrial Investment at JLL Germany, said: “If any further proof were needed to demonstrate the importance that logistics property now has for investors, the largest transaction on the entire German commercial real estate market during the first quarter once again involved a logistics property portfolio. Alpha Industrial sold a €600 million logistics portfolio to Frasers Property, with German property accounting for the lion's share of half a billion.”
At 61%, the top five transactions accounted for a similarly high proportion of the volume compared to the previous year. In terms of the total number of deals (50), the logistics investment market was dominated by transactions below €20 million, with 36 in total. The volume of these deals amounted to around €230 million.
Property situated in the Big 7 markets accounted for around €800 million, corresponding to 55% of the total. In the Berlin market area, three large individual transactions accounted for a total investment of €290 million. Hamburg (around €150 million) and Frankfurt (€90 million) were next in line. Portfolio transactions were significantly lower compared to last year. However, in comparison with asset classes such as retail (11%) or hotels (16%), the logistics share was exorbitantly high at 54%. In terms of the entire commercial property sector, this means that logistics and industrial real estate accounted for 45% of the portfolio volume in Germany. “This high share is likely to be sustained or even increased in the coming months. This is because three large-volume portfolios in the three-digit million range are currently on the market with the Alpha portfolio, the Gemini portfolio and the Optimus Prime portfolio,” said Willi Weis.
Logistics investment activities were strongly influenced by foreign capital. With an investment of over €1.1 billion, foreign investors accounted for a share of 77%, which is almost 20 percentage points above the five-year average. This comes as little surprise since only foreign players were active as buyers in the five largest transactions. German investors were present as sellers in four of these deals. Overall, their sales activities accounted for 78% of the total transaction volume. On balance, German investors reduced their property holdings by around €800 million, while foreign investors built up their assets by the same amount.
Due to the high investment pressure on investors who still have to find a home for a huge amount of capital, combined with continuing low interest rates and a lack of products in all asset classes, prime yields have continued to decline. As was already the case at the end of last year, the sharpest decline was observed in the logistics sector. In the first quarter of 2018, the prime yield here fell by another 10 basis points, reaching 4.40% at the end of March.
Willi Weis concluded: “Under the current general conditions, we expect the transaction volume on the investment market for logistics and industrial real estate to reach between €5 billion and €6 billion in 2018 — which after 2017 represents another outstanding result compared to the long term. Due to the pressure on yields, investors will increasingly focus on corporate real estate and property in the light industrial sector, and this type of property will in turn account for a higher share of the transaction volume.”