TOP 7 INDUSTRIAL AND LOGISTICS PROPERTY MARKETS: Positive outlook for investing in logistics properties

In 2023 the economic downturn and ongoing uncertainties about how business would develop led to a decline in investments in industrial and logistics properties located in Germany’s top 7 cities. Take-up of rental space totalled some 1.95m square metres and thus fell about 30 % below the prior year’s result. The volume of industrial and logistics properties traded in the top 7 cities fell by about 22 % to around €1.77bn. Both results fell short of the five-year average. “Due to the challenging economic environment, demand for space is currently rather slow in most of the top 7 markets. Demand is nevertheless greater than supply, especially in the new-build segment. There remains a shortage of suitable, attractive industrial and logistics space. In view of the current low level of construction activity, the shortage of space is likely to persist in most cities,” says Björn Holzwarth, spokesperson for the commercial property network German Property Partners (GPP), in his analysis of the situation. GPP is an association of brokers consisting of Grossmann & Berger, Anteon Immobilien, GREIF & CONTZEN Immobilien, blackolive and E & G Real Estate. 

PREMIUM RENTS RISE BY AS MUCH AS 21 %

Most of the top 7 cities posted a declining volume of uptake in 2023. Düsseldorf’s result came close to that of 2022, inching up by 1 % to 272,000 m² in 2023. Only in the Frankfurt metropolitan region did GPP note a marked increase, with take-up of logistics space up by 24 % to 484,350 m² – more than in any other top 7 city.

Across the board, the excess of demand over supply was reflected in rising rents. In the regions of Stuttgart, Munich, Frankfurt, Berlin and Hamburg, premium rents rose by 10 to 21 %. GPP noted the highest premium rent in Stuttgart, at €9.90/m²/month. Average rents for logistics space in the regional centres rose to between €6.10 and €6.90/m²/month. As the shortage of space is set to persist, rents will probably remain unchanged despite the lower levels of demand and might, in some cities, rise a little.

TRANSACTION VOLUME: STRONG GROWTH IN DÜSSELDORF

“In 2023 investors were generally hesitant to buy and only a few sales were completed;” explains Holzwarth. “In the second half of the year we at last observed a slight revival when several large-volume properties were sold and portfolio transactions completed.” GPP noted pronounced declines in the volume of transactions in Hamburg, Berlin, Cologne and Frankfurt. Düsseldorf, on the other hand, posted a large increase (+106 % to €206m). Results in Munich (+33 % to €204m) and Stuttgart (+26 % to €100m) were also higher year on year. Nevertheless, the highest volume of transactions was completed in Frankfurt, to total €438m.

GAP BETWEEN YIELDS ON OFFICE AND LOGISTICS PROPERTIES NARROWING

A combination of reduced transaction activity and rising interest rates led to an appreciable rise in prime yields over the course of the year. On average the prime yield on logistics properties in the top 7 cities rose by some 0.60 percentage points to 4.43 %. Growth was thus lower than that seen for prime yields on office properties in the top 7 cities. The yield gap between the two classes of asset contracted to 0.09 percentage points. “This indicates that investors now regard logistics real estate and office buildings as more or less equally secure assets, whereas for many years office properties were thought to be less risky and thus the preferred asset for inclusion in portfolios,” remarks Holzwarth. Many investors now believe that the importance of industrial and logistics properties has grown considerably.” Over the course of the year yields on logistics properties could increase a little, but, in view of the possibility of lower interest rates, growth will not be as great as a year ago.

In most cities the lower asking prices for industrial and logistics properties was also reflected in the prices for undeveloped land. Stuttgart was the only region to report rising land prices. In all the other GPP cities prices stagnated or decreased.

FORECAST: RISING DEMAND AND STABLE BUSINESS ENVIRONMENT

GPP expects demand to remain low at the beginning of the year in most of the top 7 cities. “In view of forecasts for economic growth, albeit at a very low level, demand for space could grow a little as the year progresses. It is, however, difficult to predict take-up because at the moment many take a sceptical view and are very uncertain about how the economy will develop. Overall, we must expect to see take-up of rental space persisting at below-average rates,” says Holzwarth. 

In terms of the investment market, the underlying outlook for industrial and logistics properties remains positive. “Although many investors are still cautious, in general there is considerable interest in acquiring such assets. In view of the shortage of properties on the market and stable or rising rental income, these investment offer better prospects than many office properties on offer,” says Holzwarth. “If the business environment stabilizes as expected in 2024, the market should revive.”

The detailed market survey for Hamburg, Berlin, Düsseldorf, Cologne, Frankfurt, Stuttgart and Munich is available and may be downloaded from our website.