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 second quarter of 2022, the report also provides an outlook on the development of the investment market for the third 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
User demand for logistics properties remains very high: a variety of factors – including the relocation of production from abroad, the expansion of supply chains into delivery networks, increased warehousing to avoid further bottlenecks, and the space requirements of e-commerce – ensure that demand for logistics space remains high. Both the take-up of space and the volume of new construction were accordingly high in the second quarter.
“On the logistics real estate investment market, the changes due to higher interest rates are making an impact. On the one hand, the number of prospective buyers is decreasing. On the other hand, properties are being offered on the market for longer or are even being taken off the market altogether because the desired conditions cannot be achieved, and properties already thought to have been sold suddenly reappear on the market. Overall, a trend reversal in prices is clearly noticeable, although some sellers have not yet adjusted their price expectations to the new market environment or are currently taking a wait-and-see attitude,” explains Natalie Weber, Authorised Signatory and Head of Fund Management at LIP Invest.
Investment market
The investment market for logistics properties achieved a transaction volume of EUR 1.9 billion in the second quarter. The strong half-year result of EUR 6.1 billion is largely due to the extraordinary first quarter. Nevertheless, investment activity in the second quarter was far above the average of the last 10 years. On of the largest deals was the sale of the 115,000 square metre H&M logistics property in Hamburg-Allermöhe.
The interest rate development, especially for long financing, has clearly gained momentum in Q2. Purchase prices are falling and yields are rising accordingly. For properties sold at lower yields in Q2, the conditions were already negotiated before the dynamic interest rate development, so they do not reflect the current conditions. For modern logistics properties, the gross initial yield in the second quarter was 3.80 per cent, although the peak of the yield increase has probably not yet been reached.
LIP constantly analyses developments on the German logistics real estate market. This includes the regard of the supply situation. LIP was offered properties with a volume of 1.1 billion euros in the second quarter, which basically speaks for a continuing high level of market activity. It remains to be seen whether all offers will actually result in transactions, as the expectations of buyers and sellers sometimes differ significantly. The dominant user group of the properties offered were logistics service providers, while industrial companies accounted for a much smaller share.
Take-up
The take-up for the first half of 2022 summed up to 4.4 million square metres. Of this, around 2.4 million square metres were let or built in the second quarter. Demand for logistics space remains high – both from logistics service providers and from retail or industrial companies. Mercedes, for example, extended its existing lease in the Ettlingen Logistics Park near Karlsruhe early on and expanded its logistics space there to a total of around 104,000 square metres.
With 1.5 million square metres, new construction activity also remains strong. In the first half of the year, a total of 2.7 million square metres of new logistics space was realised. This brisk construction activity despite the changed market environment illustrates the continuing demand for space, also among owner-occupiers. For example, the online supermarket Picnic is investing EUR 150 million in a 50,000-square-metre automated fulfilment centre in Oberhausen.
Outlook
Together with HypZert Section Logistics, LIP has published a new study on the valuation of Amazon distribution centres, which can be consulted when valuing this particular type of distribution centre. Although the distribution centres are realised according to a built-to-suit solution for Amazon, comparisons can be made with other types of logistics properties. The specialist group makes statements about Amazon’s general operations and property requirements as well as construction costs, rent, third-party usability and market data. According to the Section Logitics, the Amazon distribution centres represent a new type of logistics property, which can be characterised as a hybrid form of distribution hall and handling or parcel distribution centre. Parcels are sorted and delivered in the distribution centres. The delivery vehicles drive into the so-called canopy (loading tunnel) for loading. The size of the single-storey properties ranges from 4,000 to 12,000 m². Rents range from 10.00 to 16.00 euros/m². For several years LIP Invest has been working with the Section Logistics on the valuation of logistics properties. The complete study is available to members on the HypZert website.
The German market report is available for all interested parties to download free of charge at https://www.lip-invest.com/de/research-forschung#forschung.
