Brisk demand meets little product in the logistics investment market

Press Release

• Brisk demand meets little product in the logistics investment market
• Despite good prospects, large volumes are still being held back for the time being

FRANKFURT, 14 April 2023 - The German investment market for logistics and industrial properties has started 2023 with a significant decline: In the first quarter, the transaction volume plummeted by 74 per cent to around one billion euros - the loss is so significant because the first quarter of 2022 set an all-time high on the German logistics investment market. The last time a lower result was recorded in a first quarter was in 2016. This means that the investment volume is 53 per cent and 37 per cent below the five-year and ten-year averages respectively. At the end of 2022, the investment volume was still around twice as high.

Dominic Thoma, Co-Head of Industrial Investment JLL Germany: "The first quarter is traditionally weak. This time, however, the economic situation, difficult financing conditions and geopolitical risks dominated the entire second half of 2022 and caused players to hold back. As a result, the 2022 year-end rally failed to materialise and no deal pipeline was built up. Sellers and buyers will only go on the offensive again when they receive clear signs that the market will continue to develop and bottom out. As these have yet to materialise due to the slow decline in inflation, things are currently only progressing in small steps with small transactions."

In the first three months of the year, 53 transactions were counted. In the previous quarter, the number was 69 deals, compared to 83 transactions in the same quarter of the previous year. The number of deals in the three-digit million range also declined. While eight major transactions were registered in the first quarter of 2022, there were only two deals of this size at the start of 2023. These included the sale of the Areal Böhler site in Düsseldorf and the sale of the Bauknecht Business Park in Fellbach, a submarket of Stuttgart.

Diana Schumann, Co-Head of Industrial Investment JLL Germany: "The large-volume transactions and portfolio deals have been responsible for the strong results of recent years. Fewer large transactions naturally have an even greater impact on the transaction volume. Instead, numerous deals have taken place in much smaller segments, with investors preferring to play it safe: they are securing good properties that will only have a minor impact on their own portfolios if the market falls further."

At the moment, few and mostly low-volume products are meeting with sustained good demand, explains Thoma. "There is a lack of products tailored to institutional investors in the segment between 15 and 60 million euros. Demand is currently declining in higher price segments anyway, as such transactions are more dependent on the financing markets. It is often unallocated capital from existing funds that is looking for products. New funds are finding it difficult to raise further capital due to the current situation. At the same time, private equity companies are positioning themselves with large sums to invest and are waiting for the market to reach and overcome its low point."

"Those who are currently investing are generally doing so primarily with equity capital due to the high interest rates. Investors are only looking to finance with debt capital as soon as either interest rates become more attractive again or purchase prices allow it," says Thoma. "The market currently lacks a clear signal as to the direction in which interest rates will continue to move. If it were to fall in the long term, financing conditions would improve and the market would regain momentum. A sustained sideways movement would also be a helpful signal."

Diana Schumann adds: "Investors who are about to extend financing in particular need evidence. They have to decide whether to sell their properties in the current market or enter into more expensive follow-up financing. At the moment, this decision has to be considered individually for each product."

More momentum expected again in the long term
The majority of investors in logistics and industrial property still come from Germany (57 per cent). The picture is the same on the seller side, with domestic market participants accounting for an even larger share of 71 per cent. Overall, the balance of the property portfolio held by foreign investors increased by 149 million euros. Buyers primarily invested in properties with a core plus risk profile, accounting for 47 per cent. Core properties accounted for the second-largest share at 37 per cent, with value-add still accounting for twelve per cent.

There was no further increase in prime yields in Germany's seven major property strongholds compared to the previous quarter. Yields for top products remain at 3.90 and 3.95 per cent. They have thus risen by 95 and 100 basis points since the same quarter of the previous year. Looking ahead to the current year, Thoma says: "Sellers are just waiting for the right moment to launch their products and portfolios on the market. Whether the market reaches the originally forecast transaction volume of around eight billion euros for the year as a whole depends primarily on when inflation can be contained and when interest rates stagnate or fall. However, the fact that the Ifo business climate index has been rising again since the end of last year shows us that we can expect greater momentum again in the long term."

At the same time, Diana Schumann expects continued movement in prime rents: "However, due to the high costs of land, construction and financing as well as the fall in sales prices at the back end, the pipeline of project developments is thinning out. The continuing high demand from industry for logistics space is thus increasing the pressure on existing properties and causing rental prices to rise sharply across Germany. Re- and near-shoring tendencies will further intensify this trend. These favourable underlying data, the severe under-allocation of logistics and industrial properties in the portfolios and the currently attractive purchase prices ensure that the market revival of the asset class is only a matter of time."

Contact: Dominic Thoma, Co-Head of Industrial Investment JLL Germany
Phone: +49 (0) 89 290088 127
Email:dominic.thoma(at)jll(dot)com

Contact: Diana Schumann, Co-Head of Industrial Investment JLL Germany
Phone: +49 (0) 211 13006 410
Email:diana.schumann(at)jll(dot)com

JLL (NYSE: JLL) is a leading property services, advisory and investment management company. JLL is shaping the future of real estate with sustainability in mind, using advanced technology to deliver value-added opportunities, sustainable solutions and a contemporary workplace for clients, employees and partners. The "Fortune 500" company with annual revenues of USD 20.9 billion is active in over 80 countries with more than 103,000 employees worldwide at the end of December 2022.

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Status: February 2023

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