The European logistics property market has become one of the most attractive asset classes for institutional investors. Despite economic challenges and geopolitical uncertainties, the segment remains resilient. Positive key data on the rental market and a number of different trends drive growth and make logistics properties a strategically important component of a balanced real estate portfolio. Yet the prerequisite for success is careful selection. Demand is highest for modern, sustainable space with good transport links. What is particularly interesting for investors: the decline in construction activity means that supply remains scarce in many locations, a trend that continues to drive rental growth. Following ongoing hikes in interest rates in recent years, investment market prices have dropped noticeably. As a result, the market again offers good investment opportunities at attractive initial returns.

In Europe, Italy is currently one of the more interesting logistics markets for investors, mainly due to its attractive yield levels compared to other European countries. High-quality logistics properties are currently offering net initial yields of about 5.7 percent in Rome, and around 5.5 percent in Milan. Hence, both markets are significantly above the average peak level of the euro area, presently ranging between 4.5 and 5.0 percent.

The still moderate rent level compared to the rest of Europe makes the Italian logistics market appealing to users. In addition, investors can benefit from increases in rents. Since the beginning of 2021, prime rents for logistics space in Italy have grown by around 5 percent per year to currently 5.70 euros per square metre. Demand for modern space remains high, particularly in the economically strong regions around Milan, Bologna and Verona (referred to as ‘the Golden Triangle’). Looking ahead, the Brenner Base Tunnel, one of Europe’s largest infrastructure projects, will significantly improve rail freight transport between Austria and Italy after 2032, when it is scheduled to come into service. It should bring additional impetus to the northern Italian logistics market.

The logistics market has developed greatly and become significantly more differentiated in recent years. Over the long term, the attractiveness of logistics properties will be supported by a number of structural developments, first of all an ongoing trend towards e-commerce and the need of urban logistics real estate, but also nearshoring and reshoring strategies of the industrial and commercial sectors. Many of these drivers are mutually reinforcing: although the pandemic-related growth in online shopping has now normalised, the demand for space continues to rise, especially for warehouse and distribution centres close to customers. Urban logistics space that enables fast and efficient delivery right up to the last mile is especially in demand.

Geopolitical and economic developments can influence demand as well: companies shorten their delivery chains, relocate production facilities closer to their European sales markets and are increasingly looking for space close to production sites and final destinations. Because of this, nearshoring and reshoring are gaining in strategic importance.

In addition, environmental, social and corporate governance (ESG) factors are crucial. Increasing requirements with regard to sustainability and energy efficiency lead to a growing demand for ESG-compliant logistics properties. The range of regular fit-out options includes heat pumps, light-emitting diode (LED) lighting and, of course, photovoltaic panels. PV systems offer a range of benefits: they lower carbon dioxide emissions, save energy costs, and reduce dependence on mains power. With their large roof areas, logistics buildings offer ideal conditions for the own consumption of electrical energy. In a long-term perspective, energy efficiency helps reduce operating costs and enhances the value of properties. 

Asset Management, in particular, is in demand to make properties more sustainable, and thus more ready for the future. An example from our portfolio of properties: in collaboration with Sunrock, Real I.S. has installed a photovoltaic system on the about 12,400 square metres roof of a logistics property in the municipality of Reichertshofen, acquired by Real I.S. for an individual institutional fund solution. Added value has been created for all stakeholders: the lessee benefits from the electricity generated and lower utility costs, and the investment fund generates additional income from leasing the rooftop and also enhances the value of the property.

The current situation on Europe’s logistics property market opens up an attractive window for investments. By acting now, it is possible to secure a strong position in one of the most dynamic and most future-proofed real estate segments. Careful location and property selection together with consistent integration of ESG criteria are crucial for long-term success, with the aim of ensuring stable returns and unlocking potential to the best possible effect.

Real I.S., too, takes advantage of the attractive market dynamics. The company has broadened its offer and launched the Real I.S. LogistiX, an open-ended specialised institutional fund. The value-oriented portfolio is actively managed with a strong focus on sustainability: the investment strategy complies with the obligations of Article 8 of the EU Sustainable Finance Disclosure Regulation (SFDR). Targeted investment assets are certified, energy-efficient properties. The planned target volume amounts to around 600 million euros. The fund is offered to professional investors who are interested in ‘core’, ‘core-plus’ and ‘manage-to-core’ strategies and wish to benefit from the strength of the logistics market structure. 

For more information about the Real I.S. LogistiX, please click here.