Prime yield for logistics properties now below office value

Willingness to invest is growing, visibly increased momentum expected towards the end of the year

FRANKFURT, 25 October 2024 - After nine months, the German investment market for industrial and logistics properties is almost exactly at the previous year's level. With a transaction volume of EUR 4.7 billion, 2024 is still 20 per cent below the five-year average, but the gap to the ten-year average of minus three per cent is remarkably small. At 1.6 billion euros, the third quarter is roughly between the first two, although it is down significantly on the same quarter of the previous year at 2.6 billion euros. Nevertheless, logistics is still the second most popular asset class among investors in Germany: with a share of 20 per cent of the total volume, it is behind residential (28 per cent) and ahead of office and retail (16 per cent each).

The change in the market can be seen in the details: While only nine deals worth more than 100 million euros were registered in the first nine months of the previous year, the figure for the current year was 15. Although only three of these were in the third quarter, the 55 deals were ten more than in the previous quarter, with the average deal size falling by four million to 29 million euros.

"The momentum on the logistics investment market has increased significantly since spring, but the deals are being delayed," says Dominic Thoma, Co-Head of Industrial & Logistics Investment JLL Germany. "Although the price correction in the logistics segment has been complete for around a year, the numerous reports of insolvencies among property developers in other asset classes have once again had a negative impact on general property sentiment and, together with the late reduction in the key interest rate by the European Central Bank, have caused delays of two to three months in completions. All in all, however, the market is currently developing positively."

Diana Schumann, Co-Head of Industrial & Logistics Investment JLL Germany, adds: "Several upcoming deals have been finalised in the fourth quarter, and some are likely to extend beyond the end of the year. Whether the transaction volume of eight billion euros forecast for the year as a whole can be achieved is now primarily a question of time."

The largest transaction of the current year took place in the second quarter: The investor Branicks sold a portfolio to the developer and portfolio holder P3. The second-largest transaction was added in the past quarter: the investment company Blackstone acquired a portfolio of seven German logistics properties from the REIT Burstone. Other notable deals were also made at the beginning of the year: logistics property developer VGP and investment company Areim entered into a joint venture and investment company Clarion Partners Europe acquired a logistics property portfolio of six properties in Germany from Blackstone.

Investors and developers from outside the asset class discover logistics for themselves

As in the first half of the year, core-plus investments accounted for the majority of the transaction volume at 61 per cent, while core properties also retained the same share at 17 per cent. Twelve per cent are opportunistic transactions and ten per cent are value-add properties.

"Although there is now considerably more product on the market again, it does not do justice to the significant increase in investor demand. The focus is particularly on portfolios from the core-plus and value-add segments. We expect further deals to be concluded by the end of the year," says Schumann. "Core is slowly returning, but limited by a still comparatively low supply, while capital is gradually being made available again on the investor side. Furthermore, a remarkably high number of investors from outside the asset class are currently flowing onto the market. Developers from other segments are also investing primarily in prime urban locations in order to set up city logistics and light industrial projects."

International market participants again accounted for the majority of investments at 64 per cent, while domestic participants outweighed sellers with a 63 per cent share of the volume. This means that international investors have increased the balance of their property portfolio by around 1.3 billion euros.

Prime yields for logistics and industrial properties were compressed by ten to 15 basis points in the third quarter. In all seven property strongholds (Berlin, Düsseldorf, Frankfurt, Hamburg, Cologne, Munich and Stuttgart), the prime yield for logistics properties now stands at 4.3 per cent. It has therefore fallen below the prime yield for offices, which averages 4.36 per cent in the seven major cities.

"Although it is not yet fully reflected in the transaction volumes in the third quarter, the return of momentum on the logistics property market is already evident from the prime yields," says Thoma. "Prices are rising again for certain products, and investors are also becoming more willing to buy, not least due to a more favourable financing environment. The door to buying at the bottom of the market with higher yields is starting to close. Investors now have to readjust their yield expectations and funds have to adjust their yield promises. Some are already regretting not having bought in the first three quarters."

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

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

About JLL

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