– Investment volume for logistics properties in 2021 over 10 billion euros
– New construction volume at record level despite space shortages
– Will interest increase and the consequences of the Russian war lead to a turnaround in yields?
LIP Invest, a provider of special real estate funds in the asset class Logistics Real Estate Germany, publishes the latest developments in the increasingly popular logistics real estate asset class as part of its quarterly market report “LIP UP TO DATE – Logistikimmobilien Deutschland”. In addition to a review of the fourth quarter of 2021, the report also provides an outlook on the development of the investment market for the first quarter of 2022. The market report includes figures and information on the transaction volume, take-up of space and the volume of new buildings, the development of returns depending on the age of the building, location, property quality and lease term as well as on market developments and interest rates.
Market overview:
The year 2021 ended with a bang for the logistics real estate market: The significant key figures broke all records – in the final quarter, the dynamic market activity was not slowed down by neither a shortage of space nor high demand. The second place among the most sought-after asset classes on the commercial real estate market is thus secure for logistics real estate.
The take-up for logistics properties in particular is in flux, as there was little relief for the global supply chains over the course of the year and many companies increased their inventories. The take-up therefore remains at an unchanged high level and shows an increase of 21 percent compared to the previous year. New buildings accounted for a large part of the take-up.
Meanwhile, the significant demand for logistics real estate is results in increased pressure on yields. After the yields for existing properties fell noticeably in the third quarter, the prime yield for new buildings slipped to 3.30 percent in the final quarter.
“Some investor groups are willing to pay record-breaking prices. Some investor groups are willing to pay record-breaking prices. High investment pressure is leading many investors into the logistics property asset class. More and more investors have discovered the great importance of logistics as an interface between production, trade and consumers – the asset class, which is regarded as a safe haven with its positive future prospects, is no longer a secret. However, the excess demand has led to more and more investments in commercial and industrial real estate under the disguise of ‘logistics real estate’. A dilution of the asset class can therefore no longer be ruled out. However, this is likely to have a negative impact in the event of re-letting or sale. Special attention should be paid to this aspect when purchasing,” says Natalie Weber, Authorized Signatory and Head of Fund Management at LIP Invest.
Investment market:
At a staggering 10 billion euros, the transaction volume exceeded the previous record set in 2017. The fourth quarter made a decisive contribution to this peak value with a proud 3.8 billion euros. The ground-breaking annual result is largely based on individual deals, such as the sale of a logistics property in Bönen near Dortmund for 118 million euros.
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 965 million euros were offered to LIP in the fourth quarter of 2021. The forecast investment volume is therefore slightly below that of the previous quarter. Logistics service providers were the predominant user group of the logistics properties available on the market. Retail and industry are equally represented in the remaining shares. Almost half of the properties offered were between 10 and 25 years old.
This contrasts with the consistently high level of new construction activity: Of the approximately 5.3 million square meters of newly built logistics properties in 2021, 1.5 million square meters were started in the fourth quarter. Since – depending on the region – there is no easing in the supply situation, owner-occupiers are increasingly tackling new construction themselves. The logistics service provider Pfenning Logistics started the construction of two cold storage warehouses with a total area of 89,000 square meters near Bad Hersfeld. For the multi-user logistics centers, the contract logistics provider is investing 120 million euros.
Take-up of space:
The high take-up of 2.4 million square meters is therefore largely attributable to new buildings. Project developer Peper & Söhne, for example, let its first project in Bremerhaven with a new logistics building measuring 14,000 square meters. The majority of leases signed in the fourth quarter were for properties in the 10,000 to 20,000 square meter range. A total of 8.2 million quare meters were let or newly built in 2021.
Outlook:
The high demand for logistics properties will continue in 2022. Nevertheless, investors have been confronted with higher interest rates since the beginning of the year and are not able to benefit from the leverage effect to the same extent as before. In addition, the consequences of the war and the resulting market effects are currently difficult to assess. LIP therefore expects yields to stagnate or rise slightly in the course of 2022.
The year 2022 will be dominated by ESG and will oblige the real estate market to take further measures. Some German federal states, for example, are pursuing a photovoltaic obligation for commercial properties. Due to their surface area, the roofs of logistics properties offer high potential for the installation of photovoltaic systems. By that, further land sealing can be reduced while the carbon footprint of logistics properties can be improved. The direct transfer of green electricity also benefits the tenants of the properties. The basic prerequisite for photovoltaic systems is a sufficient roof load. LIP Invest recently founded its partner company AvanLog Solar in cooperation with Avantag Energy. This company will successively equip the roofs of the properties of all LIP logistics funds with solar modules – a total area of 320,000 square meters!
