Market in Minutes Germany logistics and industrial investment market Q4 2018

Slower yield compression will produce stronger rental growth

  • Logistics and industrial property in Germany changed hands for approximately €6.7bn last year (Table 1). As expected, this was lower (-28%) than the previous year’s record transaction volume. However, investment activity was still significantly above the five-year average (Graph 6). This underlines the sustained increase in the prominence of the sector in the institutional investment market.
  • All leading indicators are currently pointing towards a deterioration in real economic conditions (Graph 2), with foreign trade in particular appearing to lose momentum. This is likely to be reflected in demand for logistics and industrial space. However, in view of the structural growth of the logistics sector, demand is likely to continue its upward trend.
  • Prime yields, which hardened significantly further last year, have probably slowly bottomed out (Graph 7). One likely consequence of this is stronger rental growth in the core locations since developers will no longer be able to pass on rising land and construction costs to end investors in the form higher exit multipliers.
  • It is reasonable to assume that many institutional investors will be looking to increase the proportion of logistics property in their portfolios this year, suggesting that 2019 will also produce an above-average transaction volume.