By Markus Beran, Head of Origination International Investors
An increasing number of investors is considering logistics real estate as an asset class worth investing in. This then begs the questions of what to watch out for and what the latest trends are.
The boom in German logistics real estate, which started a number of years ago, has been increasingly fuelled by huge demand in the e-commerce sector. Besides the ongoing need for major hubs in rural locations with good links to the German motorway network, we are seeing a growing trend towards building logistics centres close to or even in urban areas. These serve as an extension of the large logistics centres and are geared towards delivering goods to customers more flexibly and, ultimately, more quickly. Many of these city-based logistics centres have not been built yet, but I expect a rise in construction activity moving forward.
In this context, the size of the logistics assets is key. The standard size is usually 15,000 sq.m., but this is much too large for some users and much too small for others. After all, a logistics property must meet the requirements of its tenants. Factors such as turnover rate and the transportability of goods vary depending on the sector. For example, automotive suppliers often require 100,000 sq.m. of space to operate. However, facilities of such size are usually only available in rural areas with good links to the motorway network and almost never in urban areas. The supply chain is also a decisive factor, alongside the location. Urban logistics centres may therefore be somewhat smaller.
Another key investment criterion when it comes to logistics real estate is its usability. So-called “hybrid properties” combine a wide range of usages, meaning that available logistics spaces can be used for storage, cross-docking and production. Such properties are not yet widespread, but this is changing. This will not only reduce the need for transport, but also offer a suitable means for tenants to gain a competitive advantage in terms of time and costs within the scope of intersectoral streamlining and outsourcing measures. Logistics real estate in decentralised locations should therefore be well connected to broadband internet and have reliable power supply. These two aspects are becoming increasingly important in the era of digitalisation and industry 4.0.
Looking globally, e.g. in heavily populated areas in Asia, space has obviously become a valuable commodity in the logistics market too, which fosters the need for creative solutions such as multi-storey distribution centres. However, such buildings are still rare, as the rising construction costs must be passed on to the tenants and costs are the be-all and end-all in the cost-sensitive logistics industry. Besides developing multi-storey logistics real estate, there are also talks about developing entirely new types of buildings, including logistics properties built over motorways. I believe that this is a move in a new direction with the ambition to identify new solutions with pioneering ideas. However, these ideas are still in their infancy from a real estate perspective. Such futuristic approaches still have a good chance to become more of a reality on specific markets in the medium term.
Sustainability is also a key point. Besides installing photovoltaic systems on building roofs, companies tend to increasingly favour brownfield sites over greenfield land. Developing logistics real estate on brownfield sites is indirectly contributing to ecological sustainability. Of course we must not ignore the fact that, ultimately, the market decides where logistics properties are built and where not. Available plots and underlying structural conditions limit opportunities to build logistic properties, as certain logistics standards must be maintained. The closer a building is to a city, the more compromises need to be made.
Another related question is whether we are moving away from rented property towards owner-used buildings. Most e-commerce companies and other tenants with no direct real estate business still prefer to rent rather than commit capital to assets on their balance sheets. A tenant’s decision on whether to rent a property or buy it outright depends on the firm’s accounting policy and its business strategy.
In summary, the logistics market is actively adjusting itself to a changing future. The requirements of the ever-growing e-commerce sector are making small logistics hubs in close proximity to urban areas more prevalent. Hybrid properties and creative, sustainable construction solutions are also becoming increasingly popular on the market and offer tenants a competitive advantage. Mb