German logistics steady but future hard to call: LIP Invest

German logistics property investment remained stable in the third quarter of 2022 and despite the significant and rapid interest rate increases, inflation and increased difficulty determining purchase prices, transaction volumes in the first nine months exceeded the long-term average according to logistics property fund manager LIP Invest.

In its latest report, LIP Uptodate– Logistikimmobilien Deutschland, the firm points out that although transaction activity remained high in the third quarter this was largely because deals had already been initiated at the beginning of the year.

Transaction volumes in the third quarter remained at the level of the previous quarter, €1.9 billion. In total, the transaction volume of the first nine months amounts to €8 billion, chiefly due to the strength of the first quarter.

Currently, buyers and sellers are having increasing difficulty coming to an understanding. The report states that the situation is reminiscent of the global economic crisis in 2008, with the wide gap between the price expectations of potential buyers and the value expectations of property owners.

Forecasting a significant decline in transaction activity by the end of the year with a further increase in yields, authorised signatory and head of fund management at LIP Invest Natalie Weber said, “With financing rates of around 4% or above, we will probably soon see yields of over 5% for new buildings again. Properties acquired at lower yields in recent years are likely to hold their capital values due to rent adjustments.”

Despite economic challenges including rising energy prices, supply bottlenecks and interrupted supply chains, user demand remains high and the market for new buildings “continues to develop dynamically”, even though construction costs have increased.

However,due to the limited supply of logistics properties, the letting market stalled slightly in the third quarter. At 1.8 million sq m, less logistics space was taken up than in the previous quarters. Nevertheless, the result for the first nine months, at 6.2 million sq m, exceeds the previous year’s figure. The biggest deal of the third quarter was the letting of 70,000 sq m of logistics space to Moeller Maersk in Bremerhaven.

At just under 60%, logistics service providers were the dominant user group of logistics properties available on the market in the third quarter. Industry’s share is much smaller.

In the third quarter, 1.4 million sq m of new logistics space were built, bringing new construction activity in the first nine months to 4.1 million sq m.

LIP said that it is difficult to predict the direction of the market for the next few months owing to the current geopolitical upheavals, an insecure energy supply and rising prices worldwide.