Economics and geography propel German logistics
Germany’s long-term potential as a logistics real estate location within Europe also makes it an ideal addition to pan-European property portfolios. Ingo Steves reports.
With a total investment volume of €6.9 billion, the German logistics property market experienced a rather cautious year in 2023, according to CBRE.
However, anyone looking solely at this temporary development is overlooking the enormous medium- to long-term potential that Germany has as a logistics real estate location within Europe – which also makes it an ideal addition to pan-European property portfolios. This is due to geographical and economic factors, as well as special property-industry features.
Central regions, decentralised economic structures
Germany’s location at the heart of continental Europe has always ensured the creation of versatile hubs for the international movement of goods.
Three of the most important European logistics regions – Hamburg and the surrounding area, the Ruhr region and the Rhine-Main region – are located in Germany. With their excellent infrastructure and hubs, such as Frankfurt Airport and the Port of Duisburg, they are essential for a range of industries – and largely independent of short-term economic changes.
In a market with increasingly differentiated supply chains, this has a positive effect on other German logistics locations. The same applies to the strong synergies that have developed, for example, between inland shipping in the Ruhr region and the world-famous international logistics ports of Rotterdam and Antwerp.
In addition, Germany has a high demand for modern big boxes as well as smaller logistics units, due to its decentralised economic structures, with a strong focus on small and medium-sized enterprises. With four metropolises and 11 other cities with over 500,000 inhabitants, there is a very high domestic demand for logistics.
Wide range of opportunities
Compared with France, where a large part of the gross domestic product is generated in the Paris metropolitan area and where a significant proportion of logistics space is located, demand in Germany covers a much larger geographical area. It is no coincidence that the Fraunhofer Institute has identified 24 top logistics regions in the country that present a wide range of opportunities for users and investors.
However, the availability of space in these 24 regions varies greatly. While greenfield developments are still possible in growing logistics regions like Saxony, this is hardly the case in the Ruhr area or around Stuttgart. Here, new space is created almost exclusively via brownfield developments.
Nevertheless, individual greenfield sites are still available, even in these regions. For example, we were able to find an ideal location for a greenfield site for the Zwickau North logistics centre in Ponitz. The new site in the Altenburger Land region boasts ideal connections to national and international logistics networks via the A72 and A4 motorways, as well as its proximity to Leipzig and Chemnitz. Easy access to the Dresden metropolitan region and the Czech Republic also highlights the site’s importance for international goods traffic.
Potential for value creation through rising rents
The current situation in the property markets offers a historically good opportunity for value-add-orientated investors in Germany.
First, rents are rising continuously. This is because of a combination of continued very high demand from the industrial and production sectors (40.4%), logistics service providers (29.0%) and retail companies (21.0%) and the limited availability of space. According to BNP Paribas Real Estate, prime rents rose by an average of 9% last year and top rents by 11%. For ultra-modern and ecologically sustainable properties that can be operated in a climate-neutral or even climate-positive manner, rent far above average prime levels are entirely realistic.
‘Germany as a logistics real estate location offers a wide range of opportunities to achieve value growth while maintaining stable fundamentals.’
Ingo Steves, Swiss Life Asset Managers
Due to the hesitant allocation of space by many German municipalities, excess demand is likely to increase further in the medium to long term, which points to a continued positive rental-price trend.
From an investment perspective, another factor favours future value growth: while yield compressed in the years leading up to 2021, this has changed significantly recently. Multipliers are currently at a similar level to 2017, offering investors the most favourable entry point in half a decade – although it should be noted that sustainability standards have evolved significantly since then.
Today, modern logistics properties – such as the ones we design – not only generate energy and heat via photovoltaic systems, heat pumps and geothermal probes, but also enable low-consumption operation, which is reflected in lower ancillary costs for the tenant. Given this background, there is additional room for manoeuvre when rents are adjusted.
Defensive addition with high potential for value appreciation
Overall, Germany as a logistics real estate location offers a wide range of opportunities to achieve value growth while maintaining stable fundamentals.
As these locations have a high level of security, they are suitable defensive additions to pan-European logistics portfolios.
Following the moderate price correction of the past 24 months, it is also to be expected that purchase prices will again rise significantly in the medium to long term as interest rates fall, transaction volumes increase and rents continue to rise – provided those properties fulfil the guiding principles of ecological sustainability and create added value for their locations.
Ingo Steves is managing partner for logistics at Swiss Life Asset Managers