Investor interest for logistics objects in Europe and the Baltics on the rise

2018 01 09

The demand for logistics centres in Europe is rising. In 2017, most lease and sales contracts were concluded in the largest Community markets: Greater Paris and the Midlands. Meanwhile, Spain and the South Netherlands recorded the highest growth, which is attributed to high levels of consumer spending and e-commerce, the latest European Logistics Market Property Report by BNP Paribas Real Estate shows. The growing investor interest for logistics objects is also observed in the Baltic states, with a 10% increase in the transaction value in 2017.

Experts of the international real estate consulting services company Newsec, a partner of BNP Paribas Real Estate in the Baltics, point out that the logistics sector is still underrated, and the growing volume of investment in this sector shows that the sector has a strong potential.

“2017 was already the second year in a row when the Baltic region saw the transaction volumes of over €100 million in the industrial segment of logistics alone. It was namely the logistics sector which witnessed the largest commercial real estate transaction in 2017: Swedish investment company East Capital acquired Nehatu logistics park in Tallinn from VGP Group for €54 million. During the three quarters of the year the logistics assets totalling 150,000 sq. m. were transferred in the three Baltic states,” says Neringa Rastenytė-Jančiūnienė, the head of Newsec investment transactions group.

According to the head of Newsec investment transactions group, the market is currently facing a situation with much free capital and tight supply, driving investors to look for opportunities in the Baltic logistics sector as well. Investors are also pushed into a new sector by a better capitalization rate (all risk yield), which is 200 base points higher in the logistics sector compared to more usual office or retail sectors.

“Investments are drawn to this sector by a better capitalisation rate – this indicator would be in the range of 6–7% if you acquired an office or a shopping centre with reliable tenants in the Baltic region. Meanwhile, in case of a logistics centre, the capitalisation rate of at least 8% could be adopted,” Ms Rastenytė says.

In Europe, the volumes of investment in offices and retail decreased by roughly 10%, while the logistics and industrial real estate sector recorded a 10% growth during the year. In some countries, such as Ireland, the Netherlands, Germany, Italy, Belgium, investment volumes in logistics and industrial real estate grew by around 30–50%.

The BNP Paribas Real Estate report shows that the price per square metre in logistics objects in Lithuania stood at €4.4 per month, i.e. 3% more compared to Latvia and nearly 9% less compared to Estonia. In November 2017, the highest prices were recorded in London Heathrow and Oslo with €16.3 and €11.3 per square metre respectively.

In Lithuania, lease contracts are usually signed for a period of 5 years with an opportunity to renew it for the same period; similar terms and conditions are also applied in other Baltic states. Meanwhile, in the UK tenants may be asked to conclude a contract for a period lasting as long as 30 years.

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