Interview: James Bauer, Managing Director, REAG - Five reasons to ...

REFIRE Series
German Market Report:
Storage and Logistics
Property
Storage and logistics properties account
for around 840 million sq.m.
of Germany’s 1.9 billion
sq.m. of commercial and
industrial space, and demand
for logistics facilities
has increased strongly in
recent years, according to a report by
Düsseldorf-based AENGEVELT-RE-
SEARCH. Around 8.5 million sq.m.
of space is added to the sector each
year.
Investor demand for logistics properties
has continued to increase in recent
years. The total transaction volume for
commercial and industrial properties
reached about �€8.9 billion in 2006, up
around 60% on the previous year, with
approximately a third of this figure being
accounted for by logistics properties.
AENGEVELT predict that the total
transaction volume in the commercial/
industrial sector will be around €�12
billion in 2007 but, while 2006 was a
boom year in logistics property, 2007
will see more modest
advances.
About 1.8 million
sq.m. of shed space
was let or sold in
the “Big Seven” regions
(Berlin, Düsseldorf,
Frankfurt,
Hamburg, Cologne,
Stuttgart and Munich) in 2006. Hamburg
showed itself to be the most important
of these regions, with around
514,000 sq.m. of space being turned
over in 2006, though this figure is set
to fall to around 280,000 sq.m. in
2007. This will be marginally ahead of
Frankfurt, where turnover of 270,000
sq.m. is predicted for 2007, down from
296,000 in 2006, and Munich, where
turnover will remain at last year’s levels
(240,000 sq.m.). Turnover in Berlin
will almost halve to 150,000 sq.m. in
2007, while a big drop will also be seen
in Düsseldorf (down to 130,000 sq.m.).
A marginal increase in turnover,
to 210,000 sq.m., is
predicted for Cologne. The
report predicts that around
�€1.8 billion will change hands
in commercial/industrial property deals
in these seven regions in 2007.
Rents for logistics space declined
in Germany between 2001 and 2004,
before making a slight recovery since
2005. Average rents across Germany
are now around �€5.40 per sq.m. for
new facilities and €�4.00 per sq.m. for
existing properties. Of the “Big Seven”
regions, rents for new logistics space
are highest in Hamburg (around �€6.50
per sq.m.) and lowest in Berlin (around
€4.50 per sq.m.). The report indicates
that increased building costs are a factor
behind the rent rises for newly built
facilities.
Purchase prices for commercial land
remains relatively
stable, though are
rising in selected
regions: peak prices
are �€500 per
sq.m. in Munich
(�€400 per sq.m.
in 2006), �€310 per
sq.m. in Hamburg
(�€300 per sq.m. in
2006) and �€100 per sq.m. in Leipzig
(�€60 per sq.m. in 2006). Purchase prices
for commercial and industrial property,
which had been in decline until
around 2003, added considerably more
than one year’s net rent to the multiple
in the period from 2005 to 2007. Yields
have become correspondingly compressed,
though are still high compared
to other types of property. According to
the report, yields for top logistics properties
are currently around 7.0%, while
median gross initial yields in the sector
as a whole are 8.9%. However, AEN-
GEVELT have been recently encountering
cases where the current market turbulence,
the rising interest rate climate,
higher capital requirements and other
factors, such as asset class or location,
have resulted in price reductions of up
to two years rent.
Despite the overall lower turnover
figures in 2007, the report indicates average
vacancy rates of around 5%, with
the highest vacancy rates to be found in
Frankfurt and Munich. In both these
locations, the pace of development of
new space has been, and continues to
be, well above average.
AENGEVELT are confident that the
coming years will see a growth in demand
for high value production facilities
and multifunctional logistics space, as
a result of an improved economic outlook
and increased flow of commodities
across international borders. Hamburg
is set to remain one of the most important
areas in the logistics market and
the medium term will also see considerable
growth in the sector in Bremen,
Halle-Leipzig and the Kassel/North
Hesse regions.
While the report predicts that logistics
will remain the most important sector
for many domestic and international
investors in the coming years, it warns
that the upside potential in this area may
be quite limited, given the current high
purchase price multipliers and relatively
stable rents. It also warns that the continuing
trend for shorter contract durations
for logistics properties increases
the risk of loss of revenues.
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