‘Bubble bursts’ for logistics sector as prices come down

Current market conditions are leading to a different pricing environment which is forcing sellers to make difficult adjustments, experts agreed at Real Asset Media’s Logistics Global Trends briefing.

Karolis Adlis, executive director European Investments, WP Carey

“The bubble has burst,” said Karolis Adlis, executive director European Investments, WP Carey. “There’s a disconnect between what the sellers want and what buyers are prepared to pay. Sellers have been spoilt by the market and they need to get back to reality.”

Volatile markets, higher interest rates and a difficult financing context are all contributing to pushing asset prices down.

“We’re already seeing lower prices and not just in big boxes,” said Pieter Akkerman, co-head real estate Netherlands, Schroders. “There will be interesting new transactions coming up at different price levels and, as an all-equity buyer, we will find good opportunities.”

The positive aspect from a cash buyer’s point of view is that there is less competition in the market and over-pricing is no longer an issue.

“In an unsettled market institutional capital will focus on core locations, but everything will sell if it’s priced correctly,” said Christina Forrest, fund manager, CBRE Investment Management. “There’s enough capital out there that’s interested in the logistics sector.”

Investors remain convinced that the decrease in prices reflects capital markets conditions rather than the fundamentals of the sector, which remain strong.

Sustainable assets in demand

Pieter Akkerman, Co-Head Real Estate Netherlands, Schroders

Experts agree that ESG-compliant assets will be more in demand because they will retain their value and will be easier to sell.

“Valuations are now reflecting ESG factors, with good assets being valued more,” said Joost Leendertse, founder & CEO, VerusSol. “We’re also seeing more buildings being stranded.”

The divide in the market between sustainable assets in good locations and the rest will grow wider.

“We’re witnessing a slowdown, but overall quality assets that are ESG-compliant are still stable in terms of cap rates,” said Renata Osiecka, managing partner, AXI IMMO Group. “Sustainable products will always find buyers.”

The energy crisis has accelerated the race to install photovoltaic panels on logistics assets, in order to improve sustainability credentials but also to generate cheaper energy.

“There’s a big shift in the use of logistics assets and more solar panels are being installed on the roof, which enhances the value of the property,” said Leendertse.

“We have many occupiers in our portfolio who are worried about rising energy costs and solar panels are a big help,” said Forrest. “Both investors and occupiers are asking similar questions about ESG and it makes it easier for us in the middle to facilitate that transition.”

Tenants and investors are cooperating because they share the same objective when it comes to renewable energy and cost savings.

“The need to invest in the buildings to make them more energy efficient is stronger than ever.” said Akkerman. “We see this is a tremendous opportunity”.