NAI apollo: Logistics market in Rhine-Main registers highest space take-up in Q3 2023 since autumn 2021

Frankfurt am Main, 23rd October 2023 – Momentum picked up on the warehouse and logistics property market in the Rhine-Main area in the past three months. According to NAI apollo, partner of the NAI apollo group, space take-up by tenants and owner-occupiers amounted to around 164,800 sqm in the third quarter. This represents the highest quarterly result since the third quarter of 2021. In the current year to date, take-up totals 311,800 sqm following the very weak results recorded in the first half of the year.

Higher number of lease contract signings in Q3

“Compared to the previous quarter, the last three months saw an increase in take-up in almost all size categories apart from a slight decline in demand in the small-space segment up to 1,500 sqm. The large-scale clusters with more than 5,000 sqm registered the strongest gains with an increase of 130 % to a total of 110,400 sqm. In the third quarter, contract signings for hall spaces with more than 10,000 sqm accounted for the highest share of take-up with 65,800 sqm or 39.9 %,” said Michael Weyrauch, Head of Industrial and Logistics at NAI apollo. This was primarily owing to the two biggest deals of the year with a combined 40,000 sqm in a property of CBRE Investment Management in the Geinsheim district of Trebur. The lease contract signed by Mercedes Benz AG for around 21,000 sqm of hall space represents the top deal of the year.

“However, despite the positive development in the past three months, we cannot ignore the fact that the result in the year to date remains below the long-term average. Within the last ten years, it represents the second lowest interim result after the previous year. It is also well below the five-year average with a decrease of 30 %,” said Dr Konrad Kanzler, Head of Research at NAI apollo. This can certainly be partly attributed to the deterioration in the overall economic development, which has constrained expansion activity. Even more important, however, is the continuing severe shortage of space, both in terms of available space in property stock that meets user requirements in terms of location, quality and size as well as development sites that are suitable for warehouse and logistics use. “This shortage means that the high demand for space in the Rhine-Main region despite the difficult economic situation cannot be met. A higher supply of sublet space provides some relief, as was predicted at the beginning of the year. Nevertheless, there remains an imbalance between supply and demand that is also driving up rental prices. The prime rent for warehouse and logistics spaces larger than 5,000 sqm is currently €7.60/sqm, which is 30 cents above the level of the previous year,” added Stefan Weyrauch, Co-Head of Industrial and Logistics at NAI apollo.

Take-up in new projects is well below average

New construction activity that could ease the situation on the supply side remains scarce. Space take-up in new projects is therefore almost at the same low level of the previous year. In the first three quarters of 2023, take-up in new developments, generated both by leasing activity and the start of owner-occupier projects, amounted to 72,400 sqm, which is 60.7 % below the average of the last five years (Q1-Q3 2018 - Q1-Q3 2022: 184,300 sqm). Lettings in and owner-occupier purchases of existing buildings accounts for take-up of over 239,400 sqm in the year to date. This also represents a decline compared to the five-year average, but is significantly lower at 7.8 %.

In a break-down of take-up by size cluster, the large-space segment with more than 10,000 sqm accounted for the biggest share with 103,700 sqm in the year to date. “Owing to the positive development in the past three months, this segment gained significant market share compared to the half-year result, although it was well below the five-year average of 218,300 sqm. The weak take-up in the past few quarters is also primarily owing to the lower market activity in the large-scale segment in a long-term comparison,” Kanzler said.

Logistics service providers remain largest group of users; industry and manufacturing see increases

Transport, warehousing and logistics companies again represented the most important occupier group with a 29.9 % market share or take-up of 93,200 sqm. However, this sector has lost some of its previous dominance compared both to the previous year as well as to the long-term average, when market shares of 40 % and more were achieved. “Retail also saw a decline, with current take-up of 79,200 sqm. On the other hand, companies from the industrial and manufacturing sectors made significant gains, taking second place in the ranking with 83,900 sqm or a market share of 26.9 %,” said Michael Weyrauch.

The sub-markets with the highest take-up within the Rhine-Main region are the traditionally strong southern areas, which together account for a market share of 65.0 % with over 200,000 sqm. The five largest deals, accounting for a total of around 83,000 sqm of hall space, are located here. They are followed by the sub-markets “East” with 16.2 % and “North-West” with 12.2 %. “Here, a standout deal is the leasing of 10,600 sqm by Ernst Schmitz Logistics & Technical Services in a new building project in Idstein in the first quarter of the year. In contrast, the sub-market “North-East” recorded a large decline in take-up. Here, large deals mainly in project developments enabled this area to build up considerable market shares in previous years. In 2023, on the other hand, almost no lettings have taken place here to date,” said Stefan Weyrauch.

Sustainable upturn in market activity is questionable

In the third quarter of 2023, lease contracts signed in the Rhine-Main region clearly increased. Space take-up in the past three months was higher than in the entire first half of the year. However, it is doubtful whether this means the bottom has been reached. “The overall economic outlook has deteriorated, inflation is still high, and the consumer climate remains at a low level. As a result, market players continue to act with caution. At the same time, there continues to be excess demand for warehouse and logistics space,” said Kanzler.

The primary problem is therefore not the difficult economic environment, but the ongoing shortage of space. An increase in new construction to ease the situation is not to be expected. “New projects are underway, such as those in Langenselbold, Hanau and Weiterstadt. However, the high construction and financing costs, as well as the low supply of building land for further new projects, are hampering a significant increase in similar activities. It is therefore anticipated that we will see a further rise in rental prices, also driven by the growing importance of sustainability and energy efficiency," Michael Weyrauch said. “In terms of take-up, a result slightly above 400,000 sqm is expected for the year as a whole. Although this would exceed the previous year’s weak result of 345,600 sqm, it would be well below the long-term average, as demonstrated by the comparison with the ten-year average of around 621,000 sqm," added Stefan Weyrauch.