The market for German logistics real estate is experiencing an increasing differentiation in its yield structure. As fund manager LIP Invest, which specialises in this asset class, explains in its latest quarterly report 'LIP UP TO DATE - Logistics Real Estate Germany', the presence of foreign, IRR-driven capital is leading to a visible widening in gross initial yields. While yields for assets with a volume of under EUR 40 million increased by 20 basis points in the third quarter, larger properties stand roughly 50 to 70 basis points higher in a range of 5.70 to 6.20 per cent. In light of prevailing interest rates, values for smaller properties are expected to rise further by the end of the year.
Stable transaction volume and selective price discounts
Nationwide transaction volume stood at EUR 1.5 billion in the third quarter, matching the level of the previous quarter. Since the beginning of the year, sales have totalled EUR 4.1 billion, in line with the prior-year figure. Among the major transactions was the change of ownership of the approximately 94,000-square-metre Fiege Megacenter in Hamburg. The financing environment remains challenging: the 10-year swap rate recorded intermittent increases of more than 50 basis points, and with long-term interest rates at around 4.50 per cent, debt leverage is losing its effectiveness. Market participants are responding to this trend by deploying higher equity ratios.
Sebastian Betz, managing partner of LIP Invest, highlights partly unjustified price discounts of up to one factor for properties let to automotive sector tenants. In his view, a purely occupier-focused perspective falls short, as a significant proportion of the logistics halls concerned offer high alternative use potential for other industries. He points out that specific location and property criteria remain the decisive factors for valuation.
High take-up meets subdued construction activity
Brisk demand continued across the letting markets. With take-up of 2.1 million square metres in the third quarter, the cumulative nine-month total reached 5.4 million square metres, representing a notable increase compared to the same period last year. A key transaction was the lease of around 61,000 square metres by Bw Bekleidungsmanagement in Könnern near Halle to supply the Bundeswehr.
By contrast, new construction activity remains at a subdued level. In the third quarter, only around 800,000 square metres were completed. Given the diminishing availability of greenfield sites, brownfield developments are gaining in relevance, as illustrated by Logicor's development of around 65,000 square metres of logistics space on the former Kaufhof site in Frechen.
Additional demand is being generated by Chinese retailers, which are increasingly establishing domestic logistics infrastructure in response to new EU customs duties on small parcels. At the same time, the first logistics operators are piloting humanoid robotics for sorting and order-picking processes. While this trend could reduce dependence on labour in the future, it simultaneously raises requirements for a high-performance power supply at such facilities.
