TOP 7 INDUSTRIAL AND LOGISTICS PROPERTY MARKETS 2023: Logistics properties less affected by rising interest rates than office blocks

In 2023 the market for industrial and logistics properties in Germany’s top 7 cities was marked by the economic downturn and uncertainty about which way the economy would develop.  As a result demand fell, especially so in Cologne and Düsseldorf. “Consequently, the amount of built space available has actually increased. However, the real estate is often not in the sought-after locations or lacks the right specifications,” explains Björn Holzwarth, spokesperson for the commercial property network German Property Partners (GPP). “Moreover, there is less new-build activity because borrowing is now a greater challenge. Overall, there remains a shortage of suitable, attractive industrial and logistics space.” 

GPP member firms Anteon Immobilien, E & G Real Estate, GREIF & CONTZEN Immobilien and Grossmann & Berger have compiled a fact sheet that provide an overview of how premium rent rates, land prices and prime yields have developed in Germany’s top 7 locations. 

Shortage of space fuels premium rental rates

Because there is often a mismatch between demand and available properties, premium rents in Germany’s top 7 logistics locations rose further – both within city limits (+12 % to €8.70/m²/month) and in the environs (+12 % to €7.60/m²/month). In Stuttgart GPP noted the steepest rise within city limits (+21 % to €8.50/m²/month). A similarly large rise was posted in Berlin (+16 % to € 9.40/m²/month) and Munich (+14 % to € 9.80/m²/month). Thus in absolute terms Munich, capital of Bavaria, commands the highest rental rates. In the city environs, premium rates also rose most sharply in Stuttgart (+21 % to €9.90/m²/month) and Berlin (+19 % to €7.40/m²/month). GPP identified the highest rent for property outside city limits in Stuttgart. 

Land prices stagnant or falling

With the reduction in demand for commercial building land in 2023, some of the top 7 cities noted that prices were tending to stagnate or even fall. GPP registered a fall in prices of up to 14 % inside Berlin city and up to 16 % in the surrounding communities and greater Berlin area. One exception was posted by Stuttgart’s logistics market. Transformation processes in industry, especially in the automotive industry, led to great demand for building land and resulted in price hikes of between 25 and 50 % in the environs and the greater Stuttgart area. 

Lower levels of transaction activity lead to rising yields

Overall in 2023 fewer industrial and logistics properties came onto the top 7 investment markets and the volume of transactions has declined year on year. Initially, the price discovery process and a general reluctance to commit to an investment continued as before. A certain amount of revived business activity over recent months was inadequate to compensate the shortfall so far. Low transaction levels and rising interest rates combined to push prime yields up over the course of the year. Yields in the top 7 cities have converged in the 4th quarter to range between 4.4 % and 4.5 %. The average figure in the top 7 cities was 4.43 %. Surging prime yields were most evident in Munich and Berlin (+0.90 percentage points to 4.40 %). 

On average the prime yield on logistics properties in the top 7 cities rose by some 0.60 percentage points. Yield growth was even more pronounced on office properties in the top 7. “Thus we see that rising interest rates and other structural changes have not affected investments in logistics properties as strongly as in office buildings”, comments Holzwarth. “Whereas for many years offices were seen as a secure class of asset, for many investors their value has fallen far more than that of logistics properties.” 

Forecast: asset class with potential

“If the current business environment remains as it is now, we expect both investment and letting activity to be sluggish in the first half of the year. However, the sinking inflation and swap rates of recent weeks do suggest a scenario in which the capital markets could be more conducive to real estate transactions in the year ahead,” says Holzwarth. “In general a shortage of supply and rising rental rates offer a good investment prospect for the medium term. Fundamentally, therefore, industrial and logistics properties are assets with potential.” 

 You may download the Fact Sheet on the top 7 industrial and logistics real estate markets i.e. Hamburg, Berlin, Düsseldorf, Cologne, Frankfurt, Stuttgart and Munich, from our website.