Investing in logistic and industrial real estate has boomed in recent years. In particular XL distribution centers were popular in recent years. Investors are now jumping at the light industrial market: industrial spaces on the outskirts of cities that are used for storage and production. Last year, almost 1 billion euros of this type of real estate changed hands. This is a record and amounts to almost 30% of the total investment volume in logistic and industrial real estate. Given the investment funds that were set up specifically for this purpose this year, it is expected that investments will go beyond the 1 billion euro mark for the first time.
There are three reasons for the advance of investments in light industrial real estate. The initial yields for the best industrial space are one third higher than those at the best distribution centers: 6.25% compared to 4.25%. In addition, investors apply risk diversification by investing in both categories. Finally, the number of investment opportunities in logistics real estate is declining, which makes investing in light industrial obvious.
From outdated real estate to stable investment
A remarkable development in the transactions is that more and more portfolios are being sold. Last year, this accounted for no less than 49% of the total investment volume. This year this will probably be more than 50%. These portfolios have been built up in recent years by value-add investors. Through renovation, demolition and new construction, and raising the occupancy rate, they have created profitable portfolios that have also earned the designation of ‘core’ (plus) real estate. And with that, it has become an interesting investment for a larger group of investors, including institutional parties.
The high initial yields have also been noticed abroad. In the countries around us, these returns are often lower. More and more foreign investors are therefore looking at opportunities to invest in the Netherlands. In 2018, around half of the total investment volume came from foreign investors. This year, that percentage is expected to reach 60%.
Good times for both buyer and seller
The supply of modern industrial space built after 2010 continues to decline. Because the possibilities for new construction are also limited, there is a shortage of available modern buildings. Due to the shortage, businesses are forced to pay higher and higher rents once they enter into a new lease agreement. This makes light industrial real estate even more attractive to investors. The prices they are willing to pay for real estate are therefore rising. That’s good news for sellers, of course. And indeed, a stable, high rental income is also quite nice for the new owner. All in all, a boon for both the buyer and seller, as a result of which investing in light industrial real estate is an attractive prospect, and will remain so for the foreseeable future.