Market overview
The great volatility on the capital market seemed to be over. The basis for long-term financing had settled around 3% for the 10-year swap in recent months. This ensured easier pricing for purchases and sales of logistics properties. Accordingly, gross initial yields for new-build properties remained constant in Q2 compared with the previous quarter at 4.85 to 5.10%.
Somewhat surprisingly, the last key interest rate increase from July 2023 did have an impact on long-term interest rates and led to an increase of around 0.20%. This increase will put further pressure on logistics yields, albeit only slightly at around 0.10 to 0.15%. We therefore expect gross initial yields of 4.95 to 5.20% for high-quality modern logistics properties in good locations in the third quarter.
In contrast to other asset classes, the conditions for logistics properties have adjusted comparatively quickly to market conditions. Despite lower factors, purchase prices for logistics properties are not necessarily lower than before the capital market changes, as higher rents tend to offset the lower purchase factors. Nevertheless, restraint was the order of the day on the transaction market in the first half of 2023, which is reflected in limited transaction volume. However, the property pipeline for the coming quarters is well filled, especially with new construction projects, so that there is potential for transactions in the further course of the year. The number of structured bidding processes also increased again in the second quarter.
“Following the capital market changes of the past year, logistics real estate is one of the first asset classes to be back on the starting blocks: Suitable properties for purchase are available; user demand is still high; capital market parameters have stabilized, which makes pricing easier – for decisive investors, now is the right time to start,” says Bodo Hollung, Partner and Managing Director of LIP Invest.
Investment market
Around 900 million euros were invested in German logistics real estate in the second quarter. This brings the transaction volume to 1.8 billion euros at the end of the first half of the year, the lowest level since 2015. Hardly any large-volume portfolio transactions were concluded in the first six months, which had a significant impact on the half-year result. In contrast, the importance of strong individual transactions is evident. Among the largest deals in Q2 was the sale of an 81,800 square meter logistics property in Pohlheim near Giessen, generating an annual net rent of 3.8 million euros.
The gross initial yield for new buildings in TOP locations remains constant at between 4.85 and 5.10 percent. Classic portfolio properties were hardly traded in the first half of the year. In view of the reduced purchase factors, owners are holding on to the properties for the time being or are expecting comparatively high terms. As a result, the spread in gross initial yields between new and existing construction is currently relatively small. Current tenders and sales processes – in the second quarter there was also an increase in offers for existing properties – will contribute to a better assessment of the development of yields in the further course of the year.
LIP constantly analyses the developments on the German logistics real estate market. This includes the regard of the supply situation. Properties with a volume of around 1 billion euros were offered to LIP in the second quarter of 2023. The potential investment volume thus remains constant at a moderate level. More activity on the investment market is expected in the coming quarter due to the increase in structured bidding procedures. In the second quarter, around 70% of the properties coming onto the market were mainly logistics properties used by logistics service providers.
At around 900,000 square meters, new construction activity increased slightly in the second quarter compared with the first quarter, but remains moderate. Overall, around 1.6 million square meters of new logistics space were built in the first half of the year. The largest construction start of the quarter is the speculative project development of P3 in the Jade Weser Port Wilhelmshaven with around 140,000 square meters of logistics space. Compared with previous years, the volume of new construction for the year is expected to be significantly lower, which is likely to further exacerbate the supply shortage.
Take-up of space
In the second quarter, a total of 1.3 million square meters of logistics space was leased or newly built, a similar result to the previous quarter. Take-up in the first half of the year thus totaled 2.5 million square meters. Among others, the car manufacturer BMW has leased an 82,000 square meter logistics centre in Pilsting, Lower Bavaria.
A slight increase in subleases can currently be observed, now that the additional stock or buffer capacities created last year are not always required. Logistics properties suitable for third-party use can in some cases even be sublet at higher terms. Isolated declines in demand in some regions are due to a recalculation on the part of logistics companies as a result of the sharp rise in rents and the absence of the special effects from last year. In many regions, the lack of available space continues to be the limiting factor.
Trends from logistics – Will logistics real estate soon come from the 3D printer?
3D printing processes are already being used in many fields of application in the logistics industry, for example in spare parts logistics. The real estate industry has also already experimented with 3D technology. In Beckum in Westphalia, for example, a prototype of a single-family house was built in just under 4 days, while in Heidelberg the largest building in Europe has just been “printed” layer by layer using recyclable concrete.
The house printing process could make a significant contribution to making construction faster, more economical and more environmentally friendly in the future. The technology is not yet suitable for mass production, but is more of an expensive undertaking that only a few companies in Germany offer. So, it will probably be a while before logistics real estate is printed in the shortest possible time. Logistics companies that already take on light manufacturing activities could in turn also offer 3D printing themselves in the halls and thus possibly create further demand for space.
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