Real estate: Window of opportunity opens
Markets in Northwestern Europe are starting to offer attractive yield profiles for industrial and logistics investors, says Pieter Akkerman.
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Following an extensive period of repricing on the back of rising interest rates, industrial and logistics investors are looking afresh at Northwestern Europe – the continent’s economic backbone.
Pieter Akkerman, Schroders Capital’s co-head, real estate Netherlands, explains how his team of real estate experts aims to tap into a €500 million pipeline of industrial and warehouse deals in the Netherlands, the Nordics and Germany.
Q: Why is now a good entry point for industrial and logistics real estate?
Real estate valuations have declined significantly across the board, and we are now seeing an interesting pricing level in industrial and logistics real estate where it is possible to achieve strong returns from an income perspective with the right financing.
Compared to other sectors, there is very clear demand for logistics and industrial assets because many companies are still adapting to the post-pandemic economic environment, the growth of e-commerce and nearshoring. And that demand is boosting rents: CBRE expects rental growth of 2.4% through 2028.
This dynamic is particularly strong in the Nordics, the Netherlands and Germany, which are AAA economies with constrained supply fundamentals and tightening planning restrictions. Land values and prices of logistics assets are therefore expected to rise overall, so the fundamentals are very good.
We are also seeing more favorable financing conditions than a year or two ago, in addition to less competition. This is because many institutional players are still recalibrating their own portfolios.
Q: Despite the recent price correction, some market watchers believe logistics is still relatively expensive compared with other property sectors. Do you agree?
It depends on the sub-segment. For example, the big-box, 100,000-square-meter (one-million-square-foot) logistics developments were trading at 3% yields at the market peak and experienced a very steep value decline in recent years.
It is always difficult if a 200,000-square-meter building becomes vacant, but mid-market logistics assets of 30,000-40,000 square meters are relet more easily.
Single-tenant industrial buildings offering a combination of production, manufacturing and distribution have also proven to be very resilient and a much more liquid segment within the lostistics and industrial sector.
With our logistics and industrial platform, we target the mid-sized logistics and single-tenant industrial segments, as well as last-mile distribution. These have proven to be rather resilient sectors over time.
Q: Which other segments and geographies are investors targeting?
Cold storage has scope for growth. At the end of 2024, we acquired a partial cold storage distribution centre from Ahold, the Netherlands’ leading supermarket chain; we have a 12-and-a-half-year lease contract with them at a strong location.
A lot of tailor-made buildings exist for big multinational companies in this segment with significant potential for sale-leaseback deals with long leases and good returns. And if the property function should change, you still have a strong land position or redevelopment potential.
Outdoor storage is another segment we are exploring – so, land plots where industrial companies can store all types of equipment or vehicles.
We are also interested in long-term leasehold land positions like the one we have in Eindhoven in the Netherlands, where we have a 75-year leasehold with Prologis at one of the best logistics locations in the Netherlands.
Geographically speaking, we concentrate on the Netherlands, the Nordics and Germany, because we believe those are the most mature and transparent markets in Europe with AAA ratings, good liquidity and reliable legal systems.
In the Netherlands, we look at the entire logistics axis from Rotterdam towards Venlo and Germany. That is a very interesting region due the scarcity of land and government restrictions on the issuance of new sites for logistics development.
In the Nordics, we are mainly targeting the big cities around Sweden and Denmark, including the ports and airports.
Germany is a bit more difficult because the economy is not doing so well, and industry is suffering. We think Germany could become interesting, but further repricing may be ahead.
Q: What strategies are proving most effective for industrial and logistics specialists in the region?
What appears to be most important is the combination of a very entrepreneurial team with a strong institutional framework.
Our team began this strategy over 15 years ago; we have acquired and developed all the assets ourselves, we have very strong relationships with our tenants and have alignment of interests through our co-investments. Our team on the ground is very strong with direct access to the markets and a recognised track record.
Thanks to our good contacts with tenants, brokers, developers and investors, and by being in the market on a day-to-day basis, we source about 70% of our deals off-market.
We have a very strong understanding of the local markets, especially in the Netherlands, and businesses know how to find us if they have sale-leaseback proposals, or are seeking a long-term partner for a new development.
Through Schroders Capital, we have a fully-fledged research team, so we understand the trends and how markets are developing, not only in the regions where we are active but also from a global and pan-European perspective.
That gives us a lot of insight into the markets. The combination of the large global brand and a local team is a very powerful one for our investors.
Q: You mentioned the Netherlands is one of the most attractive logistics markets in the region, but the competition has also traditionally been very strong. How would you describe it now?
The market was indeed extremely competitive three years ago, with all kinds of investors from institutional and private equity players to family offices. But since the rise in interest rates and the sharp decline in values, many institutional investors have not been able to execute deals and competition has decreased. We have a competitive logistics and industrial platform that, combined with our track record and teams’ experience, have developed long-standing relationships with partners that know we will deliver.
That said, the repricing and stabilisation of markets, combined with falling interest rates, is attracting more investors and a lot of capital is waiting on the sidelines. The momentum is clearly interesting, but the competition is gradually increasing again.
Q: ESG is a growing concern for occupiers and owners. How has Schroders Capital incorporated these features into its investment process?
Schroders Capital Real Estate is very committed to sustainability, which is driven by a third-party certified framework (ISO14001). In the Netherlands, we brought the entire portfolio up to an A label in the past three years through the installation of roof-top solar panels, LED lightning and various other measures, including circular maintenance.
We have developed new buildings that are no longer gas-fuelled, but are fully dependent on electricity from the grid.
Administrating and measuring sustainability performance is necessary and important, but even more, we focus on the practical side. Ticking the boxes on green labels and standards like GRESB is easy when focusing on new buildings, for example, but it is also important to ensure that they are actually sustainable in practice.
We see value in actively managing older buildings, in partnership with our tenants, to ensure they perform better on sustainability. That helps improve the value of the property as well as the relationship, providing potential opportunities to increase rents or extend lease contracts with tenants, as there is a win-win for both sides.
The Netherlands, Germany and Nordics are frontrunners in sustainability, which helps in realising best-in-class properties.
Q: What challenges or opportunities do you see ahead for the sector?
There are many uncertainties if you look at the political landscape, the war in Ukraine, climate change and so on, as well as if inflation will continue to increase or if interest rates would rise, and what that could mean for real estate prices.
However, if you look at the real estate sector as a whole, especially in Northwestern Europe, we believe that the logistics and industrial segment is one of the best positioned segments to benefit from the current market conditions in the years to come.
This article was first published in PERE.
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