E & G Industrial & Logistics Properties Stuttgart Region

Foreword.
With a share of 52.5% and ca. 117,000 square metres of space
turnover, automotive OEMs and their regional supply chain continue
to be the drivers of this positive trend. Their need for integrated
processes has been feeding the space demand by automotive
contract logistics and production-related forwarders.
Markus Knab
Head of Industrial & Logistics Properties
As a result, these market players have
generated a market share of 20.5%
in 2017, which corresponds to ca.
49,000 square metres of logistics
space.
These figures make a strong case for
a region, which is still highly dependent
on the automotive sector. Yet,
they are quite in line with nationwide
trends and developments in Germany.
According to an economic survey by
the German ifo-institute from January
2018, negative export expectations
can be observed in nearly all
industrial sectors. The exception to
this rule remains the German car industry
who are counting on a further
upturn of their international business
especially in Asia.
The measures by the German government
to promote e-mobility have also
had a positive impact in the Stuttgart
Region. From our operative business
and the current tenders in the automotive
sector we can project an increased
demand for electric drives
and respective research and development.
Yet, this structural change is not going
to happen disruptively, but rather
step-by-step. As the transition to
e-mobility will still require the combustion
engine as bridging technology,
both drive systems will run parallel
minimum up to 2025.
The current trend for outsourcing
in the automotive sector as well as
in other industries will be pushed
to a high level. This means that the
automotive suppliers and logistics
servicers of the Stuttgart Region can
count on a stable and sustainable environment
for their business. Especially
system logistics providers profit
from the commissioning of complex
works such as pre-assembly to external
partners. While such assignments
place high requirements on the respective
logistics facilities, they are
rewarded with longer contract durations
of five to seven, and in some cases
of up to ten years.
At the same time, the space demand
from the industrial sector has been
significantly lower with a share of
merely 11.5% and an overall take-up
of 27,000 square metres of industrial
hall space. This can only partly
be explained by the aforementioned
trend for outsourcing to logistics
service providers. Furthermore, the
industrial companies of the Stuttgart
Region continue to strongly focus on
their core business in order to meet
the challenges of industry 4.0 (automation
and digitalization).
For the investment market in light
industrial and especially for logistics
property, the described trends seem
to create a positive environment. However,
the scarcity of the sought-after
asset class logistics property has lead
to a further compression of yields.
Currently, the gross initial yield for
such products still lies at 5%. Yet, it
can be assumed that this figure will
come under further pressure over the
course of the year.
The high space volume in the last
year can be accounted for by the fact
that many development projects were
implemented on so-called brownfield
sites (plots with previous industrial
use). In some cases, the preparatory
measures (remediation, species conservation,
planning approval, etc.)
had taken years in order to make
these sites available for industrial
re-development. On the basis of our
on-going market research, we do not
expect this trend for brownfield developments
to continue on a comparable
level in 2018.
Likewise, the insufficient designation
and therefore a limited availability
of suitable greenfield plots will have
a negative impact on the industrial
and logistics space take-up in 2018.
This becomes evident from the letting
volumes in existing space, which
have already plummeted by 30% in
2017. In face of the overall scarcity
of industrial and logistics space, the
companies in the Stuttgart Region
are forced to either work with their
existing space, or to look elsewhere
for suitable facilities. Therefore, the
tight market environment could be a
further reason for the low space take-up
of industrial companies in the
previous year.
At this point, local authorities are
called upon to designate suitable sites
for industrial and logistics use in
the immediate vicinity of the region´s
OEMs and their tier 1 suppliers. The
prevailing negative preconceptions
about logistics settlement must be
challenged, because the logistics sector
plays a key role for the competitiveness
of the automotive industry in
the entire Stuttgart Region.
Next to the provision of a compatible
road and IT infrastructure, also
the availability of suitable industrial
and logistics space will remain a core
challenge for the economic success of
the Stuttgart Region.
Yours
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