By JLL

FRANKFURT - Logistics and industrial properties are clearly still on the shopping lists of most domestic and foreign investors, with the latter group investing as much as €1.65 billion more on balance in 2018. Furthermore, the 60% rise last year compared to the five-year average attests to the current strength of the logistics and industrial property asset class. In comparison, growth over the longer term has been much lower in the other usage categories: office properties registered a 43% increase and living (multi-family houses and residential portfolios with more than 10 units, apartment blocks, student halls, retirement and nursing homes and clinics) was up 16%, although retail recorded a 10% decline. Logistics and industrial property accounted for four of the 15 largest transactions (all usage categories, single asset and portfolio transactions) in Germany.

The logistics and industrial asset class recorded its second-best year ever in 2018 with a transaction volume of almost €7.5 billion. Mid-cap transactions grew significantly, and proved to be an extremely dynamic segment with 140 transactions. Purchases in this segment (investments with an individual value of up to €15 million) amounted to a combined volume of €810 million. Willi Weis, Head of Industrial Investment at JLL Germany, said: “Institutional investors plan to set up more separate investment vehicles for this purpose in 2019.

Despite the markedly higher overall number of transactions (230, +13% compared to the previous year), the investment volume was below the record level of 2017 (-14%). A comparison of the top five transactions shows precisely how this came about: in 2017, the five largest deals amounted to a volume of €4.57 billion including the Logicor portfolio with a volume of €1.9 billion alone, accounting for 53% overall. In 2018, the top five deals amounted to only €2.46 billion, corresponding to a third of the overall logistics volume. The largest transactions included the sale of the so-called Laetitia portfolio by Aurelis Real Estate to Swiss Life, comprising 32 commercial properties in locations throughout Germany; the sale of Optimus Prime Portfolio by Beos to Heleba Invest; and the sale of a logistics portfolio by Alpha Industrial Holding S.A. to Frasers Property Limited, of which the majority of around €500 million was invested in Germany property. All of these transactions had a ‘core plus’ risk profile, meaning they focused on properties with a good or very good location, creditworthy tenants and short leases.

“Light industrial property played the biggest role in portfolio transactions last year. This is a clear sign of investor willingness to invest large volumes in this asset class provided that a functioning asset management team is available or, ideally, can be acquired together with the property,” said Willi Weis. Certainly, investors are more likely to benefit from greater upside potential here compared to other areas of the industrial property market.

Weis also pointed to a further notable development: “Very long-term lease contracts were signed for e-commerce logistics properties. Amazon and Hermes are prepared to sign leases with 20-year terms. These single asset deals achieve investment volumes in the region of €100 million and net yields of 4% and slightly below.”

Willi Weis concluded: “This year again looks set to be an exciting period on the German investment market for logistics and industrial property. The prime yields will fall further in the Big 7 cities. In the 12 months to end-2018, yields fell 40 basis points to 4.10%. The gap between logistics and office yields (3.11%) is now only one percentage point, compared to two percentage points in 2011 (4.9% compared to 6.9%). In 2019, the prime yield could drop to 3.75%, causing a further narrowing of the yield gap between the two asset classes.” Weis added: “Portfolio transactions above €500 million will also reappear in 2019. At least two deals in this range are in the preparatory stage. On the other hand, small and medium-sized companies from the manufacturing sector will ramp up their activities significantly in 2019. It was already the case last year that such companies were increasingly thinking selling their industrial property under a sale and leaseback arrangement. We will undoubtedly see more transactions in this area. Overall, we believe that a transaction volume at the level of the previous year is possible for 2019.”