LIP Invest Market Report “Logistics Real Estate Germany” Q2 2022

LIP Invest, a leading provider of real estate special funds for institutional investors in the asset class of logistics real estate in Germany, publishes its quarterly market report “LIP UP TO DATE – Logistics Real Estate Germany” detailing current developments in the highly sought-after asset class of logistics real estate. 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.

(Munich) The market report includes figures and information on transaction volume, space turnover and new construction volume, yield development depending on building age, location, property quality, and lease term, as well as interest rates and market events.

Market Overview

The demand for logistics real estate remains very high: A multitude of factors – including the reshoring of production from abroad, the expansion of supply chains into delivery networks, increased inventory to avoid further bottlenecks, and the space requirements of e-commerce – contribute to a persistently high demand for logistics space. Both space turnover and new construction volume are correspondingly high in the second quarter.

“In contrast, there is great reluctance in the logistics real estate investment market, and the changes due to higher interest rates are having an effect. On the one hand, the number of interested buyers is decreasing. On the other hand, properties are being offered on the market for longer or are even being completely withdrawn from the market, as the desired conditions cannot be achieved, and properties thought to be sold suddenly reappear on the market. Overall, a noticeable trend reversal in prices is evident, although some sellers have not yet adjusted their price expectations to the new market environment or are currently taking a wait-and-see approach,” assesses Natalie Weber, authorized signatory and Head of Fund Management at LIP Invest.

Investment Market

The investment market for logistics real estate achieved a transaction volume of 1.9 billion euros in the second quarter. The strong half-year result of 6.1 billion euros is largely due to the extraordinary first quarter. Nevertheless, investment activity in the second quarter was still well above the average of the last ten years. Among the largest individual deals was the sale of the approximately 115,000 square meter H&M logistics property in Hamburg-Allermöhe.

The interest rate development, particularly for long-term financing, has significantly increased in Q2. Purchase prices are falling, and yields are rising accordingly. For properties sold in the second quarter at lower yields, the conditions had already been 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 percent, with the peak of the yield increase likely not yet reached.

LIP continuously analyzes developments in the German logistics real estate market. This includes monitoring the supply situation. In the second quarter, LIP was offered properties with a volume of 1.1 billion euros for purchase, which generally indicates a persistently high market activity. Whether all offers will actually transition into transactions remains to be seen, as the expectations of buyers and sellers are sometimes significantly divergent. The dominant user group of the offered properties were logistics service providers, while a significantly smaller share was accounted for by industrial companies.

Space Turnover

The space turnover for the first half of 2022 amounts to 4.4 million square meters. Of this, approximately 2.4 million square meters were rented or built in the second quarter. The demand for logistics space remains unbroken – both from logistics service providers and from trade and industrial companies. For example, Mercedes has early extended its existing lease in the logistics park Ettlingen near Karlsruhe and has also expanded its logistics space there to a total of approximately 104,000 square meters.

With 1.5 million square meters, new construction activity remains strong. In the first half of the year, a total of 2.7 million square meters of new logistics space was realized. This active construction activity despite the changed market environment illustrates the ongoing space demand, even among owner-occupiers. For instance, the online supermarket Picnic is investing 150 million euros in a 50,000 square meter automated fulfillment center in Oberhausen.

Outlook

LIP, together with the HypZert logistics expert group, has published a new study on the valuation of Amazon distribution centers, which can be consulted for the evaluation of this particular type of distribution center. For the distribution centers, which are built according to a built-to-suit solution for Amazon, comparisons can be drawn with other types of logistics properties. The expert group makes statements about the general processes and property requirements of Amazon as well as construction costs, rental prices, third-party usability, and market data. According to the logistics expert group, Amazon distribution centers represent a new type of logistics property that can be characterized as a hybrid of distribution hall and transshipment or parcel distribution center. In the distribution centers, packages are sorted and delivered. The delivery vehicles enter the so-called canopy (loading tunnel) for loading. The size of the single-story properties ranges from 4,000 to 12,000 square meters. The rents range from 10.00 to 16.00 euros per square meter. LIP Invest has been working with the logistics expert group for several years on the valuation of logistics properties. The complete study is accessible to members on the HypZert website.

The market report is available for free download to all interested parties:
https://www.lip-invest.com/de/research-forschung#forschung

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