Stefan Wundrak

Logical investments?

​Logistics has been a favourite with investors for a while now and with new capital flowing into the sector dynamics have begun to change. Since Henderson started to raise capital for German logistics in early 2012 and made its first investments in summer 2012, a variety of domestic and cross border players have jumped on the bandwagon.

​​Logistics has been a favourite with investors for a while now and with new capital flowing into the sector dynamics have begun to change. Since Henderson started to raise capital for German logistics in early 2012 and made its first investments in summer 2012, a variety of domestic and cross border players have jumped on the bandwagon.

Due to inward yields shift, driven by some aggressive market entrants, our latest European forecasts show logistics total returns for the next five years no longer outperforming offices in 5 out of 11 European countries. In particular in core Europe, the performance outlook has become more mediocre as a result of lower entry yields and some cyclical rental growth already achieved. Our technical market forecasts take the prime assets benchmark and we think that long let assets with top covenants in prime locations are somewhat overpriced. Investors in that segment of the market have to contemplate some outward yields shift for the period when “tapering” starts in earnest. This has been the case for German prime offices and prime retail for quite a while now and logistics was set to follow at some point.
As risk aversion prevails the core plus assets we target, in particular with shorter dated income, will continue to be priced less keenly. In addition, we believe that European forecast models underestimate structural supply constraints for logistics in many local markets in Germany. Germany is Europe’s centre in terms of population, geography and manufacturing output and lumping it in with all other European logistics markets makes as much sense as putting Frankfurt in the same league of financial centres such as London.

The popularity of logistics in the last two years has been driven by the sector’s attractive income yields, with investors highly sceptical of capital growth strategies after incurring substantial losses in the years following 2007. Investors can rest assured that this is still in place; on the income side logistics is forecast to outperform offices by 100 to 200 bps pa over the next five years. However, investors who want to position themselves for high total returns will have to take exposure to offices in Spain, Italy, the Netherlands and Ireland, where a cyclical rental recovery as well as inward yield shift are needed to achieve projected capital growth.

Stefan Wundrak

Stefan Wundrak

Head of European Research

Stefan's biography