Rent rises and falling yields keep logistics train rolling

Logistics’ ascent as the asset class of choice makes acquiring assets a competitive business and investors are having to find different routes in to expand their portfolios. Paul Strohm reports.

The contrast could hardly be more extreme. On one hand, more traditional retailers such as Arcadia and Debenhams were heading into administration just weeks before the Christmas festivities kicked off – in previous years this might have been the period during which some lost ground was made up. 

On the other hand, the clamour to obtain logistics buildings to participate in the brave, newish world of online retailing is reaching a crescendo as market players look for new wrinkles to somehow, in the face of intense competition, increase their exposure to the sector.

Some investors have been able to make step changes in their holdings through portfolio acquisition. For others the acquisition process has been more incremental, frequently frustrated by the fact that many of the companies that are likely to develop new logistics space are themselves investors and so are likely to hold on to assets once completed. 

Rents rising

Occupier demand for space is pushing up logistics rents – CBRE reckons that the average rate in major European markets will be 1.9%pa between 2020 and 2024 and higher in urban locations owing to land scarcity and e-commerce demand. 

And according to Savills in its latest European Investment Spotlight, average prime yield compression over the last six months has been -7bps, taking the yield to 4.84%. However, compression in the Czech Republic was -25bps to 4.25%, Germany’s -20bps took it to 3.5%, Norway saw a -30bps drop to 4.25%, the Netherlands fell -15bps to 4.10% and Spain -30bps to 4.85%. 

Some of the bigger players have taken the opportunity to ‘recycle’ assets. They are by no means getting out of the sector but clearly, in the face of such unprecedented yield adjustments in their sector compared with the historic purchase prices of some properties, realising profit has become a tempting prospect.

‘Sale-and-leaseback is one of the areas we are going to be looking at quite closely as more retailers look for liquidity by selling some of their assets.’

Otis Spencer, P3 Logistic Parks

In the autumn, Prologis sold a portfolio of UK land and buildings to funds managed by US private equity house Blackstone for £473 million in what was proclaimed “the largest sale of logistics real estate assets on record in the UK”. Most of the assets had been acquired from Liberty Property Trust when Prologis acquired the New York-listed company in February 2020 for $13 billion in an all-stock deal.

The portfolio Prologis sold to Blackstone included 22 buildings totalling about 4.3 million sq ft (399,500 sq m) and about 31 acres (12.5 ha) of land with planning consent. Most of the property was in the UK’s Midlands, with some in the South West and North West regions.

Portfolio realignment

At the time Prologis senior vice president and UK head Paul Weston explained the deal “completes the realignment of our UK portfolio with our long-term investment strategy in key distribution locations in the Midlands and the South East, along with our focus on urban ‘last touch’ properties in London”.

In November Prologis also sold a portfolio in Spain to Clarion Partners Europe. This portfolio of five properties, totalling 132,348 sq m, is located in Barcelona and Seville. The price was not revealed but was reported at €90 million and brought Clarion’s investment in assets this year in Spain, France and the Netherlands to nearly €300 million. 

Other notable portfolio acquisitions include Madison International Realty’s acquisition of a stake in a 30-asset European logistics and light industrial portfolio alongside local partner, Cairn Real Estate, investing through Dutch logistics vehicle, the Gateway Fund. Madison has invested €22.5 million, although it said this will increase to €50 million over the coming 18 months and give Madison a significant stake in the portfolio. About 90% by value is in the Netherlands, the remainder in Germany. 

In a sale-and-leaseback deal Carlyle Group bought 27 distribution logistics assets on behalf of the €540 million Carlyle Europe Realty fund. The portfolio of 27 logistics parcel-delivery assets totalled 158,000 sq m, of which 58% was in France and 42% in Germany. 

But in one of the largest deals of the year P3 Logistic Parks, owned by Singapore’s sovereign wealth fund GIC, paid around €800 million for 33 retail logistics assets in Germany, dubbed the Matrix portfolio. 

The properties, which have a total of 650,000 sq m, are all occupied by German wholesaler Metro AG and are based in prime urban locations in large German cities and towns, including Berlin, Dortmund, Nuremburg, Hamburg, Hanover, Cologne, Dresden and Leipzig. 

P3 Logistic Parks’ chief investment officer Otis Spencer explains that the ‘retail logistics’ label derives from the fact that the assets’ urban locations would be appropriate to both uses since Metro is a business-to-business retailer. 

‘The French market is probably one of the more difficult ones in Europe to enter.’

Christophe Chauvard, P3 Logistic Parks

“What we like, besides the locations and the quality of the income, is the optionality. In the event that they decide to leave one of these locations we could of course make an assessment to see how it can be repurposed for a more urban or last-mile logistics use,” says Spencer.

“However, we are still at an early stage with the customer in Germany and we are focusing our efforts on building a good relationship with them and exploring mutually beneficial opportunities.”

Another factor that gives P3 this ‘optionality’ is the convergence of logistics and retail rents in some markets. “It has happened in the UK and in Paris, but is not a widespread phenomenon. We do anticipate that it is coming though,” Spencer says. “And we anticipate that if some of these locations are converted to full urban logistics use we may even be able to achieve a higher rent.” 

The deal was not a sale-and-leaseback – that took place some years ago when a private equity company bought the portfolio from Metro. However, Metro is looking at bringing some assets to market in Romania and Slovakia. “We’ll definitely be taking a look at them.”


“Sale-and-leaseback is one of the areas we are going to be looking at quite closely as we do think there will be, not so much distress, but more retailers looking for liquidity by selling some of their assets.”

It is one of the strategies P3 Logistic Parks could employ to increase its France portfolio. “The French market is probably one of the more difficult ones in Europe to enter,” points out Christophe Chauvard, the firm’s managing director for France. He says that in France the company has between 50 and 60 direct competitors competition from the capital markets, and a planning regime that means development can take two to three years if you are lucky and five to six if you are not. 

Built-to-suit developments can have an accelerated timescale where there is the leverage of having a tenant in tow. But among other options is selecting existing assets with the opportunity to add value. Another possibility is to identify developers that need a partner to get a scheme off the ground. 

The other option is further portfolio acquisition. Although opportunities are scarce, P3 does at least have the financial resources via GIC to do this.