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Germany’s logistics real estate market has experienced years of significant growth and transformation, driven by shifts in consumer behavior, supply chain dynamics, and technological advancements. According to a comprehensive study by the Fraunhofer Institute, the logistics sector in Germany is poised to expand with an annual growth rate of 5-7% until 2025.
This optimistic outlook is primarily attributed to the relentless rise of e-commerce and the increasing complexity of supply chains that demand more sophisticated and strategically located logistics spaces.
The need for additional logistics space is evident in the surge of new developments. Aurelis Real Estate, a co-author of the study with the Fraunhofer Institute, highlights a wave of large-scale projects scheduled to be completed by 2025. A notable example is Aurelis’ own 250,000 square meter logistics park in North Rhine-Westphalia, designed to accommodate the growing demand for modern logistics infrastructure.
Logistics overtakes Office for the first time
In a comparison of logistics real estate with other asset classes such as office and retail, logistics is currently outperforming. A recent JLL Deutschland market analysis underscores a stark contrast between the logistics and office sectors. While the office sector grapples with challenges stemming from the rise of remote work, logistics properties have witnessed unprecedented demand. JLL’s latest report states, "The shift towards e-commerce has accelerated the demand for logistics space, with take-up levels in 2023 reaching a record high of 7.1 million square meters."
This demand surge is further supported by investment trends. Colliers’ data shows that investment volumes in the logistics sector surpassed those in office real estate for the first time, with €12.3 billion transacted in 2023. Colliers attributes this to the sector’s resilience during economic downturns, making it a more attractive option for investors seeking stability and high yields.
Growth trajectory - firmly fixed on expansion
The logistics sector’s growth trajectory does appear firmly on the expansion path. According to JLL, the total stock of logistics space in Germany is projected to exceed 90 million square meters by 2025, up from 82 million square meters in 2023. This projection is supported by several factors, including ongoing demand from e-commerce, third-party logistics providers, and manufacturers.
However, the sector faces notable hurdles that could impact its growth. High construction costs and regulatory hurdles are significant obstacles. Despite these issues, the sector’s fundamentals remain strong. Prime yields for logistics assets in core locations like Hamburg and Munich have compressed to 3.5%, with further tightening expected as competition for high-quality assets intensifies.
Diverse investment strategies
Investment strategies in the logistics sector are diverse, reflecting the varied opportunities available. Core-plus investors are particularly focused on stable, income-generating properties with solid fundamentals. These investors aim to achieve long-term growth through value-add strategies such as property enhancements and active management.
On the other hand, some investors are exploring opportunistic investments in secondary markets where yields are higher, and the potential for rental growth is significant. According to Real Capital Analytics, transaction volumes in the German logistics sector reached €14 billion in 2023 (slightly ahead of Colliers estimates), marking a 12% increase from the previous year. This uptick in transaction volumes indicates strong investor confidence in the sector’s prospects, with prime yields holding steady, while slight compression is expected in high-demand areas.
In terms of transactions, Real Capital Analytics reports a significant increase in deal volume, with a 12% year-over-year increase to that €14 billion in 2023. This increase is partly due to high-profile transactions involving prime logistics assets. These prominent transactions highlight the strong investor interest in the sector and the willingness to invest significant capital in high-quality logistics properties.
Letting market dynamics
The letting market for logistics real estate in Germany is also showing positive dynamics. Sarina Schekahn of JLL reports, "The turnover of logistics space in 2023 reached 6.8 million square meters, up from 6.3 million square meters in 2022." This increase in turnover is likewise driven by robust demand from e-commerce companies, third-party logistics providers, and manufacturers seeking to optimize their supply chains.
Vacancy rates in prime logistics locations remain low, indicating a tight market. For instance, vacancy rates in key markets like Berlin and Frankfurt are below 2%, according to Colliers. This low vacancy rate suggests that demand for logistics space continues to outstrip supply, creating a landlord-favorable market. The ongoing development of new logistics facilities aims to address this supply-demand imbalance, but the high demand ensures that vacancy rates remain low.
REFIRE: While Germany’s logistics real estate market is characterized by robust demand, ongoing construction costs and regulatory hurdles, its strong fundamentals and low vacancy rates continue to attract investors. With projections indicating continued growth driven by e-commerce and complex supply chains, the market remains a compelling option for investors. As JLL’s report suggests, "With strong fundamentals and ongoing demand, the logistics real estate sector in Germany continues to attract significant investment."
