• Transaction volume at double the five-year average
  • Industrial assets increasingly attract investor interest
  • Portfolio deals account for half of total investment volume
  • Gross prime yields for logistics assets stable since late 2017
The upward trend on the German industrial and logistics investment market continues following a successful 2017. According to Colliers International, investors poured a total of around €3.2 billion into this asset class in the first six months of 2018. Industrial and logistics assets remain one of the three most popular asset classes in Germany, claiming a 13% share of the total commercial real estate market.

Hubert Reck, head of industrial & logistics investment at Colliers International, comments; “As expected, it proved impossible to exceed the outstanding results of the previous year (H1 2017: €5.4 billion), which can primarily be attributed to several large-volume portfolio deals. Nevertheless, 2018 mid-year results significantly outperformed previous H1 results. Industrial and logistics investment volume is double the five-year average, for example, making it the second-highest result ever recorded.” 

Peter Kunz, head of industrial & logistics at Colliers International, adds; “The main problem continues to be insufficient supply. Development sites are particularly scarce in conurbations with construction costs increasing every year, which in turn has an impact on long-term rent trends. You also have the fact that municipalities prefer residential and office developments over pure logistics projects.”

Traditional logistics properties, which accounted for more than two-thirds of total investment volume, were not the only asset class to meet with investor interest. Industrial properties and business parks once again proved to be a coveted investment target as well, generating over €1 billion in the first half of the year and doubling their share in total investment volume. 

Portfolio deals account for half of total investment volume

While various large-volume real estate portfolios changed hands last year, laying the basis for a record result, 2018 saw more of a balance between portfolio and single asset deals. Portfolio deals accounted for around 56% of the mid-year result (approx. €1.8 billion), including the acquisition of Alpha Industrial by Asian asset manager Frasers Property in Q1 for a total of €600 million. Frasers also signed the second-largest portfolio deal of the year to date by adding the 21 German and Dutch properties acquired from Dutch asset manager Geneba in 2017 to its Singapore-listed REIT, “Frasers Logistics & Industrial Trust (FLT)”. Geneba last estimated the value of its portfolio at €534 million prior the acquisition in 2017. German assets accounted for 75% of the purchase price.

Single asset deals with a total volume of €1.4 billion primarily involved investors from Germany.

Foreign investor interest in German assets still strong

Investors from outside of Germany again dominated the market with just under €2 billion (61%). Although that puts foreign investment volume down one-fifth from the previous year, the result is still 9% above the five-year average. Investors from the US (approx. €369 million), the UK (approx. €362 million) and Singapore were particularly active. The high investment volume of the latter can be traced back to investor Frasers Property, which alone was responsible for almost one-third of total transaction volume.

Asset managers (€1.3 billion) and open-ended real estate funds/special funds (€586 million) were once again most active buy side, accounting for the lion’s share of investment volume as in the previous year. Real Estate Investment Trusts (REITs) currently hold third place. Deutsche Industrie REIT was particularly active, investing in several German light industrial assets in 2018.

Logistics yields remain stable at 4.65% 

The supply of core products on the German market remains very low, pushing many investors into riskier asset classes and alternative investments. As a result, gross prime yields for industrial assets in prime locations fell slightly by 10 basis points to a current 5.9%.

In contrast with last year, however, yield compression on logistics assets appears to be subsiding. While asset multipliers continue to exceed 20x, yields have stabilized at a low level and have remained unchanged at 4.65% since late 2017. 

Stiff competition for industrial & logistics assets

“General conditions remain consistently favorable for investors. Many foreign investors tend to primarily focus on Europe’s core markets, which promise attractive investment opportunities and a high degree of security. Considerable interest from abroad, especially from Asian countries, will continue to make for lively activity on the German market. Investors are also increasingly showing interest in light industrial assets, which are in greater demand in Germany and are more popular among communities and cities than traditional logistics properties. They are also favored by traditional logistics developers because of a better NOI, higher land prices and the building permit situation. 

“Our outlook for the second half of the year is favorable. Some larger logistics and light industrial portfolios are currently in the pipeline, promising new capital. Further portfolios are also in the process of being brought to market. We currently assume that high investor motivation will ensure a satisfactory annual result with the chances of 2018 exceeding €6 billion mark realistic,” concludes Hubert Reck.