Covid-19 boosts prospects for logistics real estate investments

The European logistics real estate market will emerge as a beneficiary of the Covid-19 pandemic in the medium to long term, according to new market analysis by Catella Research. 

A key reason for this is the volume growth of online trade during the coronavirus crisis coupled with an increase in the number of people working from home. In addition, significant upheavals in the department store sector in Europe also add to the positive outlook for logistics property investors. In operational terms, the first measurable effects of production relocations are also being recorded, and this is accompanied by a change in location within European conurbations.

Professor Dr Thomas Beyerle, Head of Research Catella Group, says: "The still existing excess returns compared to other asset classes and the constant shortage of space continue to drive investor demand. This metamorphosis, away from a niche segment to a sustainable investment class, is continuing almost exponentially."

This development is reflected in the development of yield compression: Currently, the European average yield is 5.4 per cent, the lowest at 3.7 per cent in Berlin and the highest at 8.5 per cent in Tartu, Estonia. In Germany's top regions, the prime yields for logistics properties have fallen well below the 4 per cent mark.

Catella's study, which covers 107 European logistics regions, also reveals that the current European top rent averages EUR5.62/sq m, ranging from EUR3.40/sq m in Lodz in Poland to EUR16.15/sq m at London Heathrow.

Many Mediterranean cities also show significant yield discounts, with Marseille, for example, showing a decline of 125 basis points to 4 per cent. In Poland and the Czech Republic meanwhile, Catella has reported rising prices across the board, while the the highest yield values are in the three Baltic countries, with top yields of 7.25 per cent.

Catella says the Nordic markets still appear cheap compared to their European counterparts, with Copenhagen (5.0 per cent), Helsinki (5.2 per cent) and Stockholm (4.6 per cent) in particular experiencing further yield compression.

Price levels are more or less stable only in the UK, Italy and Poland, while the London logistics region continues to generate by far the highest rents, with yields remaining unchanged at 4 per cent.