Investing in industrial and warehouse properties: advantages and risks

The attractiveness of warehouse real estate in Europe

Industrial and warehouse properties, including logistics centers, are becoming increasingly sought after by investors in the European region. Every year, significant capital investments amounting to tens of billions of euros flow into this real estate segment.

Key factors of investment attractiveness

The key factors that make investing in warehouse real estate attractive are found in several aspects:

• Low initial investmentsTo enter this market, investment amounts start at 25,000 euros, which opens access for a broader audience of investors.
• High yieldThe yield of this segment ranges from 6% to 8%, which significantly exceeds the yield of office real estate (4% to 5%) and retail spaces (5% to 6%).
• Long-term leaseMany properties are rented out for long terms — from 5 to 10 years, which ensures stable income.
• Low operating costsManaging such objects requires less effort and financial resources.

Risks associated with investments

However, like in any business sector, there are certain risks here that should be taken into account:

• The influence of external economic factorsThe deterioration of the economic situation or changes in lending conditions can lead to a decrease in income.
• Competition in the marketNew players may offer more competitive prices, which could negatively impact financial performance.
• Problems with outdated buildingsOld buildings may lose their relevance due to outdated energy efficiency requirements, which will require significant funding for modernization.

Types of properties in the warehouse real estate sector

When it comes to types of properties in the industrial and warehouse real estate sector, there are many options available:

• Logistics centersthe most common ones, including warehouses, distribution centers, and logistics parks.
• Self storageSelf-storage facilities for storing items from both individuals and small commercial entities.
• Business parks: complexes where less than 50% of the area is allocated for office space.
• Industrial facilitiesThey are used for storing, packaging, and selling goods, often combining the functions of warehouses, offices, and production areas.
• Agricultural storage complexesThey are engaged in the storage and processing of agricultural products.

Market statistics in Germany

According to the research "Logistic Property — Market and Locations," conducted in 2013 by specialists from the Fraunhofer-Aktionsgruppe für Supply Chain Services SCS, the total warehouse space in Germany amounts to approximately 330 million square meters.

Only 15% of this volume meets the basic requirements, including a minimum area of 8,000 square meters, a ceiling height of 6.5 meters, and buildings constructed before 1985. This highlights both the significant opportunities and the high competitiveness in the market, as well as the need to adapt properties to modern requirements, which in turn creates potential for investment.

Modern standards of logistics centers

In modern conditions, a logistics center is a crucial element of infrastructure, and its standard parameters include a single-story building with a height of no less than 10 and no more than 12 meters, with a load capacity of at least 5 tons per square meter. Key characteristics of this facility include convenient two-way access for vehicles, a gas heating system, and significantly spacious parking areas for both trucks and passenger cars.

An additional advantage is the availability of certificates forenergy efficiencysuch as DGNB, LEED, and BREEAM, which highlight high standards of design and operation.

Transport infrastructure

When choosing a suitable logistics center, it is important to focus on the developed...transport infrastructure, which covers not only railway tracks but also organized road junctions and access roads. Also important isdemand from tenantsand also the effectiveness of managing the asset, which has a significant impact on the success of the business.

The logistics real estate market in Europe

As for the European logistics real estate market, a study by Savills shows that last year, investment in such centers increased by an impressive 29%, reaching 30 billion euros. This figure is almost comparable to the record levels recorded in 2007, andaverage investment volumeapproximately 22.2 billion euros per year.

Among the leading countries in this field, the United Kingdom and Germany stand out, together accounting for 59% of the total investments in the region for the year 2014.

Promising regions for investment

Areas with high investment potential are located in major cities such as:

• Berlin
• Hamburg
• London
• Madrid
• Marseille
• Munich
• Paris
• Frankfurt
• Stuttgart

The investment risk here is relatively low. Established markets such as Budapest, Warsaw, Vienna, Krakow, Moscow, St. Petersburg, and Helsinki are characterized by relative stability. However, in the emerging market that includes Bucharest, Kyiv, Sofia, and Istanbul, high rental yields are also associated with increased risks.

Investments in logistics facilities in Germany

Investments in logistics facilities in Germany are of particular interest to investors. The country's economic structure, which has a clear export orientation, ensures significant growth in the logistics sector, which demonstrates the highest level of demand in Europe. The infrastructure supporting the sector provides employment for approximately 2.89 million people.

Conclusion

In conclusion, logistics real estate is an attractive investment asset in the European market. I have emphasized the importance of this sector, which not only demonstrates steady growth but also offers a variety of opportunities for investors at any capital level.

The ability to enter the market with a relatively low threshold and high returns makes warehouse properties particularly attractive for investment.

Potential risks

It is important to note that, despite the many advantages, investors should be aware of potential risks. In a volatile economic environment and with increasing competition, it is essential to carefully assess the market when choosing properties with good fundamental characteristics. This is especially relevant for older buildings, which may require significant investments for modernization.

Diversity of objects

I also highlighted the variety of types of properties that fall under industrial and warehouse real estate, ranging from logistics centers to business parks and agricultural storage complexes. Each of these areas has its own characteristics and can meet different needs for both tenants and investors.

Germany as an attractive market

To date, special attention should be paid to Germany as one of the most stable and high-yield markets for this type of investment. Given the growth of the economy and the active development of the logistics sector, it is expected that the demand for warehouse real estate will continue to increase.

Recommendations for investors

At the same time, my recommendation for potential investors is to:

• Keep an eye on market trends;
• Assess potential risks;
• Practice diversifying your portfolio.

Results

In conclusion, it can be said that investments in industrial and warehouse properties open new horizons of profitability for investors willing to engage actively in this dynamic and promising sector. I am confident that those who decide to invest in this market will be able to reap significant benefits in the coming years.