Outlook 2024: Logistics and data centres are investors’ pick

In the current challenging market investors are being selective, and logistics and data centres are emerging as top choices, experts agreed at Real Asset Media’s European Outlook 2024: Focus on Germany briefing, which took place recently in Frankfurt, hosted by CMS.

Thomas Veith, Partner, Global Real Estate Leader, PwC

“The change in supply chains is a megatrend, so logistics still has a lot of potential to grow further, despite the challenges,” said Thomas Veith, partner, global real estate leader, PwC. “It’s also a sector that allows significant investments and big-ticket deals.”

The demand for logistics is fuelled by the reconfiguration of supply chains, the inshoring or nearshoring trend and companies’ desire to be closer to their customers. E-commerce, while not at the peaks seen during the pandemic, is still an important factor.

“We’re very optimistic on logistics,” said Philipp Schönnenbeck, partner, CMS Hasche Sigle. “We see that even spec developments are going ahead and getting financing.”

The projects that get the green light are sure to find buyers or tenants, as they have scarcity value. The lack of available land limits supply, and municipalities in Germany and elsewhere in Europe are often reluctant to grant the necessary permits.

The same issue is limiting the growth of data centres, another sector that is in great demand.

“The data centres market is small and it will be constrained by lack of power and by regulatory issues,” said Schönnenbeck. “In Frankfurt, for example, there are limits on zoning and data centres are not welcome in the city.”

Markus Beran, Head of Origination, International Investors, Berlin Hyp

Across the country the growing hunger for power is not being met by a growth in supply, especially when it comes to green energy.

“Energy supply is a big topic that needs to be tackled,” said Markus Beran, head of origination, international investors, Berlin Hyp. “In Germany we just don’t have the renewable energy that we need.”

Recent research estimates that the demand for data centres will surge by 61% between now and 2025, but lack of power is a constraining factor.

“Technology has completely changed our behaviour and the demand for data centres cannot be overestimated,” said Barbara Lewandowicz, founder, Molveno Investment Partners. “But data centres are very capital-intensive and need a lot of energy.”

Given the growing demand for data processing, the challenge is to create ESG-compliant data centres.

“Many data centres have moved to the Nordics, where there’s more availability of green energy,” said Veith. “Another issue is that it’s a small market and you cannot invest large amounts of money.”

Challenges seem to outweigh opportunities at the moment, experts agreed.

“In Germany people have accepted that we have a problem and that there will be plenty of dislocation and distress, which may offer opportunities,” said Lewandowicz. “Real estate ends 2023 with many questions hanging in the air, but hopefully 2024 will give us many answers.”