German urban logistics and light industrial assets promising, DLE says

The pandemic has brought logistical real estate and infrastructure into the spotlight driven by long-term underlying e-commerce trends. It is advantageous to start pivoting urban logistics and light industrial assets for yield premium, Dr. Kilian Mahler, DLE Logistics’ Germany-based managing partner, told The Korea Economic Daily.

Prior to joining DLE, he was the Head of Fund Management Logistics and Caverns at Germany-based investment manager PATRIZIA. He has more than 15 years of experience in the German and international real estate market, focusing on the logistics sector.

He has a strong track record transacting more than €3 billion in investment volume and has managed more than seven real estate funds. Under his leadership, DLE Logistics has a total of 11 assets in key logistics locations in Germany secured.

DLE Logistics is the logistics investment arm of Berlin-headquartered alternative asset manager DLE Group AG. The group manages more than €2.5 billion in assets. It covers the entire real estate value chain by establishing specialized verticals in land banking, real estate debt, and yielding real estate sectors including senior living and logistics.

The following is a transcript of the email interview with Dr. Mahler.

▲How do you see the market fundamentals and demand growth of the logistics sector in Germany?

"Entering 2022, we see strong sustainable demand for logistics assets in Germany. The trend towards e-commerce has been accelerated by the pandemic. During the first three quarters in 2021, 50% of the takeup from retail companies was attributed to e-commerce, driven particularly by food e-retail."

"Supply chain volatility driven by the pandemic has also increased market demand for logistical infrastructure as businesses realize the strategic importance and resulting competitive advantage of having such assets in-house or under long-term leases. With rising transportation costs and supply chain delays in 2022, we expect transportation costs to remain elevated, and companies will continue to lease more space to manage costs."

"In Germany, strong demand for logistics assets is met with limited supply. We believe this is due to land scarcity. There is a further tightening of building permits for new logistics developments resulting in greater pressure on the market driving rents higher. Prime rents have continued to grow in 2021 with prime rents increasing 4.6% on average in the top five cities in Germany. New regulations have also been implemented to reduce the traffic congestion of large trucks in city centers." 

▲Where does DLE see value in the logistics sector this year? 

"We expect further yield compression in the logistics sector to continue in 2022 exposing value in the urban logistics and light industrials sector which currently continues to generate prime yields of 5 to 6% or a yield premium of 200 to 300 basis points over the former." 

"In 2021, there was a strong investment volume of more than €10 billion of logistics properties transacted.  We expect investment volume to increase further in 2022 -- The strong demand led to prime yields in the German industrial and logistics real estate to compress further to approximately 3% by the end of 2021." 

▲Does pivoting to urban logistics and light industrials bring more advantages to investors?

"Investments in logistics have traditionally been in core single warehouse assets. Considering the tight pricing in the current environment, we believe it is advantageous to start pivoting and adapting urban logistics and light industrial assets to capture the yield premium in this segment. We expect greater yield compression in this segment."

▲What are the characteristics of the assets from your view and how can investors expect better rewards?

“Urban logistics and light industrial assets are production-related or multi-functional buildings servicing a variety of tenants. These assets benefit from third-party usability and a diversified tenant base. In this segment, the average lease term of these assets is stable and has a lower tenancy risk with limited single-tenant dependency." 

"Given that these assets are multi-tenanted, asset operators can adjust and maximize re-pricing in the lease portfolio depending on the market cycle. Compared to a single-tenant large, big-box warehouse, there is more asset management work required. However, investors in this segment can be better rewarded in terms of returns." 

Write to Chang Jae Yoo at yoocool@hankyung.com
Jihyun Kim edited this article.