July 18, 2012, Munich – The market for logistics and industrial properties slightly outperformed last year’s results, with transaction volume of some € 594 million at the end of the first half of this year, bucking the slight downward trend on the overall commercial investment market. The market as a whole declined by about 15% year on year, to approximately € 9.4 billion. “In terms of transaction volume, logistics and industrial properties were thus the fourth most popular investment vehicle, after office, retail, and mixed-use properties,” says Andreas Trumpp, Head of Research at Colliers International, Germany. “At about 41 percent, international investors’ share was also above the level of the overall market, as was the percentage of transactions involving portfolios, at some 45 percent,” Trumpp adds.
Larger portfolio purchases and sales by international investors
International investors were active to a greater extent in the first six months of this year, on both the buyer and seller sides. At the start of the year, Prologis and funds managed by Prologis sold a total of eight logistics properties together amounting to more than 240,000 m² of leased space to a fund managed by Tristan Capital Partners for about € 137 million as part of a share deal. Dexus Fund Management Ltd. also sold off the majority of its real estate in Germany over several steps. Also at the start of the year, Edeka Südwest took over three predominantly owner-occupied properties in the Heilbronn area. Later in the year, Hansteen Holdings acquired six properties from Dexus for about € 26 million. “Based on these large-volume transactions in particular, existing properties accounted for just under 82 percent of transactions. Only a scant 12 percent of transaction volume in the first half of 2012 was attributable to new construction and logistics properties currently under construction,” Trumpp says, analyzing developments.
Three groups of buyers split the market
On the buyer side, open-ended real estate funds and special real estate funds held the highest market share, at about 30%, with investment volume at approximately € 181 million. This group was closely matched by opportunity funds and private equity funds, which also made up about 30% of the activity, with investment volume of € 177 million. Based on purchases made by owner-occupants such as Edeka Südwest, corporates and owner-occupants came in third, at about 17% and € 102 million in investment volume. A similarly clear picture emerged on the seller side. Project developers sold logistics and industrial real estate valued at approximately € 266 million, for market share of 45%, putting them ahead of the next two groups of sellers: asset and fund managers (19% and € 112 million) and corporates (16% and € 95 million) overall.
First-class products still in short supply
“Like in the office real estate segment, most of the demand for logistics and industrial real estate centers on core and core plus properties in major metropolitan areas,” says Marcus Blumenthal, Senior Consultant Industry and Logistics at Colliers International in Munich. But as in the market as a whole, this segment is experiencing a noticeable excess of demand, especially among German investors, due to the current supply shortage. “It is striking to note that since the start of this year, we have been seeing investors on the market who previously invested only in office and retail properties, but are now also including logistics properties in their search profiles in order to meet their yield specifications,” Blumenthal points out. Properties that fit the bill are few and far between, however. As a result, prime yields for first-class logistics properties showed a further slight decline in most locations. In both Düsseldorf (7.25%) and Frankfurt (6.50%) the decline amounted to 25 base points, while Berlin (7.40%) and Munich (6.90%) both posted decreases of 10 base points. The prime yield in Hamburg was stable, at 7.20%. Stuttgart was the only city to see an increase, with the prime yield rising 10 base points, to 7.20%.
Outlook: Extensive activity expected on the market in the second half of the year
“The lack of logistics properties suitable for investment – meaning modern logistics properties – will remain in effect in the second half of the year as well, since project developers are still holding off due to the strict requirements on the financing side,” Blumenthal says in summary. “At the same time, speculative developments would do the market a great deal of good, especially in the logistics centers, since many large-scale tenants are actively looking for space,” he adds. Limiting factors include the strict financing conditions currently available and the limited number of suitable properties as well as high real estate prices, especially in southern Germany. We expect the market for value-added and more opportunistic investments to gain momentum in the second half of the year. Despite the fact that buyers and sellers continue to have often divergent expectations regarding prices and yields, a number of sales are in the preparatory stages. On the whole, transaction volume should rise further in the medium term, since the first exit strategies on the part of investors who were especially active from 2006 to 2008 are now being implemented. No major changes in prime yields are expected at this time, since the tense supply situation for first-class properties is not expected to ease in the short term.