Logistics properties offer attractive diversification opportunities
Union Investment Real Estate is among the leading European investors in the logistics market. Since 2005, the fund management team has successfully invested in many multi-purpose warehouse facilities and intends to continue growing the portfolio.
"Logistics properties are an exciting asset class and the ideal addition to our investment portfolios," says investment manager Stephan Riechers. Union Investment currently holds logistics properties worth more than EUR 700 million, equating to around 2.5 per cent of the EUR 28.5 billion real estate portfolio. In future, the aim is for between 5 and 10 per cent of the annual transaction volume to be in the logistics segment. With the exception of thematic funds that specialise in different uses, the logistics asset class is an established part of all the company’s real estate funds.
While some purchases have been made in other countries, there is a clear investment focus on Germany. For good reason, as Riechers explains: "In the logistics sector, Germany is the second biggest investment market in Europe after the UK and because its domestic prospects remain good and the eurozone is recovering, it offers excellent investment opportunities." Concentrating on the German market thus makes sense, where 15 of Union Investment’s 18 logistics properties are located. Total lettable space held in this segment is approximately 850,000 sq m, which corresponds to around 115 football pitches. .
Market entry at international level
Union Investment first entered the logistics segment in 2005, combining this milestone with entering the Hungarian market. On the outskirts of the capital, Budapest, close to the airport, the company acquired two logistics locations – Airport Business Park and M1 Business Park – with a total of 230,000 sq m of space as part of a substantial investment package.
The fund managers achieved their next milestone two years later with the first logistics acquisition in Germany. Union Investment invested in a new business park north-east of Worms. A logistics new build purchased there in 2007 offers approximately 30,000 sq m of warehousing, in addition to office and service space. The property serves the strong demand for new logistics space with flexible subdivision options in a high-growth region which is centrally located in Europe – thus the assessment by the investment Team.
Development projects preferred
The logistics portfolio has been steadily expanded since 2005. Today, additional locations and properties for transporting, storing and distributing goods have been successfully integrated to diversify the funds. Union Investment invests primarily in development projects and is therefore present right at the start of the value creation chain. This is the best way of ensuring the desired combination of multi-purpose warehouse space with a special focus on sustainability in sought-after logistics markets. The investment managers favour established logistics markets and seek out prime locations at major logistics hubs, preferably in close proximity to an international airport or seaport. Specialist providers in the logistics property market enjoy working with Union Investment, notes Stephan Riechers: "As a major investor, our ability to realise even challenging transactions is particularly welcomed by the market."
Leveraging the complete value chain
"The funds’ multi-user properties are let on medium- or long-term leases and held in the portfolio for ten years on average," says Riechers, explaining the strategy behind the company’s logistics investments. Accordingly, Union Investment focuses on more recent properties that appeal to a broad range of tenants and are easy to market. Specialist facilities, such as warehouses designed for hazardous goods, are not considered. Attractive disposals have already demonstrated that the portfolio's logistics properties are successful and liquid assets. In 2014, fund management sold five logistics buildings. After a ten-year holding period, the M1 Business Park in Hungary was also disposed of at a profit in 2015.
Union Investment thus succeeds in leveraging opportunities in the logistics segment across the full value chain. "Returns are generated at the acquisition stage, especially through development projects, as well as during the property management stage and when selling the property," comments Stephan Riechers. Recent project acquisitions reflect the declared strategy of reducing the average age of the logistics portfolio. In 2014, Union Investment acquired the MegaCenter RheinMain development project at the established Dieburger Dreieck logistics location in Germany – its second biggest logistics investment to date. Thanks to its sustainable construction, the property will be eligible for Gold certification by the German Sustainable Building Council (DGNB).