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Stable H1 performance on Germany’s top 8 industrial and logistics markets

Germany’s top 8 industrial and logistics real estate markets generally saw average H1 performance. Take-up, which was strong at the start of the year, slowed in Q2 due to the outbreak of the pandemic. The lockdown particularly had an immediate impact on market activity. Many established logistics markets recorded below-average leasing activity compared to previous years despite ongoing high demand for logistics space. According to Colliers International, take-up came to about 1.2 million sqm in H1, up 5% yoy but roughly 3% below the 3-year average.

Peter Kunz FRICS, Head of Industrial & Logistics at Colliers International, comments: “On the one hand, the crisis has shown that logistics is an essential part of our economy, making logistics properties more attractive to many investors. On the other, we need to remember that the logistics market is still facing a significant supply bottleneck. This factor continues to impact take-up results in some markets.”

Berlin (-37%), Düsseldorf (-17%), Frankfurt (-56%) and Cologne (-22%) all registered below-average take-up in H1, particularly due to weak Q2 results. The Hamburg logistics market was one of the country’s regions to post a yoy increase in take-up with results in at 13% despite the negative impact of the pandemic. This uptick can primarily be attributed to a strong Q1. However, if we take a closer look at market activity in the city, the only leases signed during the lockdown were small-scale in nature.

The Munich and Leipzig logistics regions proved an exception to the general trend. Take-up in Munich exceeded previous-year results (H1 2019: 108,900 sqm) thanks to a large-scale lease signed by KraussMaffei for about 137,800 sqm in VGP Park Parsdorf . Aside from this major lease, however, the Munich logistics market also saw subdued activity in Q2. The Leipzig logistics region posted a strong growth trend compared to the previous year with an above-average result of 293,500 sqm in H1 2020, up roughly 92% yoy. This impressive result can primarily be attributed to lively new-build activity and high demand from retail and e-commerce. The city’s largest lease, which involved roughly 80,000 sqm of new-build space in the Saalekreis submarket, was signed by an e-commerce company. Unlike Germany’s other established logistics regions, the majority of leases signed on the Leipzig logistics market were large-scale leases. About 79% of all leases signed in Leipzig in H1 involved units of over 10,000 sqm. By contrast, large-scale leases for more than 10,000 sqm only accounted for just over half of take-up registered in a nationwide comparison.

Despite the crisis, production and manufacturing managed to generate the highest share in take-up at about 29%. However, this performance can be traced back to the relocation of engineering company KraussMaffei within Munich, a decision that was announced in 2019. Without the KraussMaffei lease, production and manufacturing would only account for 20% of total take-up in Germany. Retailers came in second at 28%, or roughly 338,000 sqm. Contract logistics in the automotive industry appears to be the tenant sector that has been hit the hardest by the pandemic.

The pandemic boosted logistics market performance, with demand for warehouses available for immediate tenancy rising among the food sector, pharmaceuticals and e-commerce in the past few months. At the same time, many companies continue to adopt a wait-and-see stance, putting their search for new space on hold. “Many market players are postponing their plans to sign a new lease. Although a number of companies are still in the market for logistics space, they are reluctant to make decisions due to the general economic uncertainty,” says Peter Kunz.

Rent trend remains stable
Despite defaults on rent and subdued demand, prime and average rents in H1 remained largely unaffected by the pandemic and managed to match the prices recorded in the previous quarter. Limited supply and high demand continue to put pressure on rents. Rent increases, however, are not an option in view of the current economic situation. According to Colliers International, we can expect this trend to continue throughout the year.

The only exception to this general rent trend is to be found in the Düsseldorf logistics region where prime rents were up a slight 3% to €5.90 per sqm in Q2 2020 despite the pandemic. A severe supply bottleneck and ongoing above-average demand meant leases were signed at higher rents.

Market prepares for return to normalcy
“After the lockdown and a period of subdued activity, most market players are finding their way back to normalcy. A number of lease negotiations have resumed, and we expect an increasing number of companies to follow through with their leasing plans, meaning that activity on the leasing market is likely to be up in H2. Some general uncertainties will nevertheless remain, as a second lockdown cannot be entirely ruled out. With the pandemic, a number of market participants have seen that the logistics market is robust and that it has long-term growth potential thanks to the booming e-commerce sector. However, the long-term impact of the crisis on the automotive industry and the effectiveness of the German government’s aid package in the different sectors remain to be seen,” Peter Kunz concludes.