Market in Minutes Industrial property Market Germany

Logistics properties in the focus of investors

Text: Matti Schenk

Properties in the industrial investment market (logistics and production properties as well as business parks) changed hands for a total of around €7.5bn (see Graph below) over the last twelve months (February 2020 to January 2021). The transaction volume for the full year of 2020 totalled approximately €7.1bn, which was in line with the previous year. Hence, the industrial property market proved significantly more resilient than other commercial uses during the year of the COVID-19 pandemic. By way of comparison, office and retail property registered declines of 22% and 19% in investment volume respectively during the course of the year.

Meanwhile, the Upper Rhine, A4-Saxony, Rhine-Ruhr, Cologne, Hanover-Brunswick and Nuremberg logistics regions witnessed significant rises in their respective transaction volumes. Investment also increased in the Hamburg, Munich and Berlin regions. The ten regions (out of 28 in total) with the highest investment volumes accounted for around 61% of the overall transaction volume last year (see also our Industrial investment map). Logistics hubs of online retailers and attractive last-mile properties are particularly sought after by investors. In view of the strong demand for such premium properties, prime yields across the top six cities hardened by a further 20 basis points to 3.5% last year. Consequently, the yield spread to core office properties has contracted to around just 60 basis points (see Graph below). We expect further yield compression in 2021 and a further decrease in the yield spread to offices. By the end of the year, prime yields on logistics properties are likely to be almost in line with those on prime high-street properties. This illustrates the extent to which logistics property has risen in favour with investors. While risks in the occupier markets have increased on many commercial property types over the last year, premium logistics properties occupied by tenants with good credit ratings promise stable long-term income, which is one of the most sought-after commodities in the capital markets at present.

Given the strong occupier demand for high-quality space in prime locations, prime rents across the top-six regions rose by an average of around 3% to €6.35 per sq m/month (see Graph below) last year. We also expect prime rents to increase further this year. In some sectors and secondary logistics locations, however, there are risks of downward trends in demand. This includes some automotive suppliers, for instance, which are under pressure owing to the accelerating transformation of the sector. An overall catch-up effect in insolvencies is also anticipated. Consequently, investors are currently placing even greater importance on the creditworthiness of tenants, which also explains the strong focus on properties of major online retailers and logistics operators. The strong demand from occupiers and investors for last-mile locations is explained by a boom in door-to-door suppliers with the food retail sector being a notable example. With consolidations likely going forward, however, it is also essential to examine the long-term sustainability of business models.

Further information, for example the ten largest transactions of the last twelve months and all charts and raw data for download, can be found in the PDF.