In recent years, logistics properties have emerged as a resilient asset class, largely impervious to market fluctuations and consistently delivering stable returns.
Over the past five years, this asset class has witnessed a steadily increasing volume of transactions, as confirmed by market observations conducted by Cushman & Wakefield or CBRE. This trend has continued into the current year, with over 40 percent of the transaction volume in the German property market in the first quarter of 2024 allocated to logistics and residential sectors. According to the JLL Investment Market Overview, €1.7 billion was invested in logistics and industrial properties in just the first quarter.
Despite these positive trends, developing and managing logistic properties demand proactive planning to ensure the economic viability of your assets. What factors must you as project developer or asset manager consider? What prerequisites are necessary to maintain and expand your market position now?
Our series on "Future-proof, Sustainable, and Profitable Logistics Properties" provides an overview of the current challenges in the logistics property sector, necessary actions, best practices, and potential solutions.
Current Market Observations
The demand for logistics properties in Germany distinctly favours cutting-edge, well-located, and flexible warehouse spaces that meet increasing logistical, sustainable and technological demands. Properties that enable rapid adaptation to various uses and meet sustainability and energy efficiency standards are particularly sought after. The latest figures for this are provided by JLL’s "Warehouse Retrofit".
What distinguishes an attractive logistics property?
- Compliance with ESG standards (e.g., CO2 emissions, energy efficiency, sustainable materials)
- Adaptability to various uses
61% of logistics properties in Western and Central Europe are more than ten years old; in Germany, this figure is 57% (JLL Warehouse Retrofit). Meeting ESG criteria is becoming increasingly vital to meet the sustainability demands of your users and investors, even with your existing properties.
Here, a frequent question arises: how do we evaluate which investments in existing stock are truly ecological and economically sensible?
Five Critical Areas of Action for Project Developers and Asset Managers
Sustainability requirements for new builds and existing buildings have intensified in recent months, not least due to the adoption of new and revised regulations. There is significant uncertainty about what sustainability actually means for logistics properties. Simultaneously, any company wishing to remain competitive cannot afford to ignore these developments. What external factors besides emission efficiency are influencing your business decisions now? An overview:
- Regulatory Developments Regarding ESG and Sustainability
Regulations for sustainable standards are on the rise: The European Union and Germany are increasingly focusing on decarbonisation, which also has direct impacts on the management of your logistics properties.
- EU Taxonomy: The EU Taxonomy is a classification system that determines which investments are considered ecologically sustainable. This system is part of the European Green Deal and aims to direct capital flow into sustainable and environmentally friendly projects. More information about this directive can be found at this link.
- EU Directive on the Energy Performance of Buildings (EPBD): This directive requires EU member states to improve the energy efficiency of buildings. An overview of the provisions for non-residential buildings includes:some text
- Energy efficiency standards: The EPBD mandates that all new buildings (from 2020) must be Nearly Zero-Energy Buildings (NZEB). Similar strict energy efficiency standards must be met for existing buildings undergoing major renovations. These measures reduce energy demand and, thus, CO2 emissions.
- Energy certificates: All buildings that are sold, leased, or newly constructed must have a valid energy certificate that assesses energy efficiency and provides improvement suggestions.
- System requirements: The EPBD sets stringent efficiency criteria for the installation and size of heating, cooling, and ventilation systems, particularly in complex non-residential buildings.
- Inspections: Heating and cooling systems must be regularly inspected to ensure their efficiency, which can lead to recommendations for maintenance or upgrades.
- Smart Readiness Indicator (SRI): This assessment tool measures how well buildings are equipped with smart technologies for efficient operation, which often involves the use of building automation systems in non-residential buildings.
- German Building Energy Act (GEG): This law consolidates and updates the regulations for energy savings and the use of renewable energies in buildings in Germany. It transposes the EPBD into national law and stipulates, among other things, that new buildings must be Nearly Zero-Energy Buildings.
- Investor Requirements
Financial institutions are increasingly integrating Environmental, Social, and Governance (ESG) factors into their lending practices, particularly in the logistics property sector. This is reflected in the increase in sustainability-linked loans (SLLs) that adjust interest rates based on the ESG performance of the borrowers. An example of this is the use of loans linked to specific sustainability criteria, such as the energy efficiency classification of buildings or investments in sustainable technologies (Emerging Trends in Real Estate: Europe 2024). Outdated logistics properties are increasingly being penalised with price reductions, increasing the pressure to overhaul existing stocks.
- Technological Innovations
Technological developments such as the Internet of Things (IoT), robotics, and intelligent warehousing solutions are revolutionising the logistics industry. As an asset manager you must ensure that your properties are equipped with these technologies to remain efficient, secure, and competitive. Utilising Big Data and AI can further optimise operational processes and enable more precise investment decisions.
- E-commerce Developments
The continuously growing e-commerce sector is increasing the demand for logistics spaces, especially in urban areas for so-called "last-mile" delivery. This necessitates rapid adaptation and partial reorientation of the logistical infrastructure. (JLL Warehouse Retrofit 2024)
- Flexibility
The requirements for logistics spaces are changing rapidly, making multifunctional and flexible usage concepts more important than ever. Buildings must be quickly adaptable to different usage scenarios, which in turn necessitates investments in modular construction methods and innovative building technology. This is particularly relevant in the construction of new logistics properties. (JLL Warehouse Retrofit 2024)
Summary
The studies mentioned indicate that financing and investment in logistics properties continue to benefit from structural trends such as e-commerce expansion, despite a slow macroeconomic environment and high interest rates. Simultaneously, Environmental, Social, and Governance (ESG) factors are increasingly important for the evaluation and management of your property investments. Adhering to these ESG criteria is becoming essential for market success and maintaining competitiveness. If you as a developer or investor consider these trends and requirements you will secure strategic advantages and strengthen your market position.
Would you like specific recommendations for your portfolio? In the following article, we show how leading real estate companies such as INBRIGHT and Values Real Estate are responding to current market developments.
