In their latest market report, the real estate experts from Greif & Contzen take a look at the first three quarters in the industrial and logistics property market of Cologne|Bonn. The bottom line: Following the dent caused by the corona crisis, it can already be observed that the market is recovering, and companies, investors and property developers are signalling their confidence in the region.

In the second quarter of 2020, the commercial property market of the Cologne|Bonn region was severely affected by the corona pandemic. Industrial and production companies and their affiliated logistics service providers experienced restrictions, faltering supply chains and declining demand. Production sites, warehouses and service premises: Demand for space and real estate decreased across all types of use in the industrial and logistics sector, and intended investments were postponed. However, demand for space in the Cologne|Bonn region has picked up once again in recent weeks. “Companies from various industries are currently looking for premises,” says Frank Klähn, Head of Industrial and Logistics Properties at Greif & Contzen Immobilienmakler GmbH. He continues to point out that the corona pandemic is, of course, still noticeable. “Many companies continue to act cautiously, and decision-making processes have slowed down compared to the time before the corona crisis.” It can be observed, nevertheless, that market participants have regained a cautiously optimistic outlook for the future.

The city of Cologne proves to be relatively robust
The corona-related slump is reflected clearly in take-up figures: Around 110,000 square metres of warehouse space were taken up by the end of the third quarter, and this corresponds to a decrease by around 40 percent since the year before. However, a major share of these losses was recorded in the surrounding region, while the city of Cologne itself is a statistical outlier. At around 50,000 square metres, take-up of space has been about 5,000 square metres higher than in the same period last year. The reason for this is that new buildings have been added to the total stock of space, while vacancies in existing buildings increased from about 35,000 square metres a year ago to currently around 86,000 square metres. “New buildings and an increase of vacant space provide quite simply for greater choice for tenants,” Frank Klähn explains. “Since Cologne continues to be in high demand, businesses are happy to take these opportunities, despite the fact that landlords are now asking for higher rents.” In the area surrounding Cologne, vacancies increased to currently around 160,000 square metres (up from 125,000 square metres a year ago), due mostly to the fact that Kaufhof gave up a warehouse in Frechen. The situation remains largely unchanged in Bonn, where only a few smaller units are available for rent. Bigger rental units are meanwhile still available in the west of the logistics region, such as in Frechen and Kerpen.

Property developers are confident, yet building land remains scarce
The experts from Greif & Contzen expect that a total of around 120,000 square metres of warehouse space will be completed in the logistics region Cologne|Bonn in 2020 – a quarter less than in 2019. Nevertheless, property developers continue to trust in the Cologne|Bonn region and would gladly build more. “We can observe that property development endeavours are pursued further and that construction measures are also initiated speculatively, that is without pre-letting,” says Klähn. “This is a clear sign that the market expects the Cologne|Bonn region to quickly recover from the corona crisis and to continue on its growth course.” However, there is a big obstacle in the way of any investment plans: Construction land is very scarce. Prospective sellers of land can benefit from this situation. “Where empty plots in favourable locations are designated as building land, as has recently been the case in Rheinbach, there is a strong demand surplus that enables sellers to choose between various interested parties,” Frank Klähn explains.

Prices are rising
The demand surplus also gives rise to an increase of prices for commercial building land. The range of prices realised in Cologne rose from between EUR 150 and 280 per square metre to now EUR 175 to 300. In Bonn, prices increased from EUR 90 to 215 per square metre to EUR 130 to 250.

Demand for space is fuelled by good basic conditions
Leverkusen is a good example that shows that companies like to grow and settle in the region, provided that there are favourable basic conditions. The city lowered the trade tax rate from 475 to 250 percent, which led to an increase in demand for space that could not be fully catered for.

Development of prices reflects faith in the region
The development of rents in recent months reflects confidence and faith in the region: Companies are holding on to Cologne|Bonn as a business location. A number of important market segments continue to experience a demand surplus, causing the level of prices to increase further in 2020. The prime and average rent in Cologne rose due to contracts concluded in the sought-after segment of new buildings. The current prime rent is EUR 5.80, and the average rent EUR 5.10 per square metre of warehouse space. Average rents in the towns of the surrounding region remained stable at EUR 4.60 per square metre.

Investment
Industrial and logistics properties for a total of around EUR 240 million were sold in the Cologne|Bonn logistics region in the first three quarters of 2020. This corresponds to an increase of around EUR 140 million compared to the same period last year. Investment activities were particularly busy in Kerpen, Frechen and Euskirchen, where funds acquired properties to add to their portfolios. The biggest property sold was the production and logistics facility of a paper manufacturer in Euskirchen. The 42,000 square metre premises were purchased by Deutsche Industrie REIT in the course of a sale and leaseback transaction. One of the highest prices was realised with a new building in Kerpen with a size of around 28,000 square metres that also include office space. The property was added to a specialist fund by LIP Invest. Osmab Holding bought a portfolio comprising four logistics properties of about 10,000 square metres each that are located in Frechen and Kerpen.

Outlook: cautiously optimistic
Frank Klähn calls for caution: “Current key figures suggest that many market participants in the Cologne|Bonn region are generally optimistic. However, the crisis is far from over.” It is not possible at this point to fully assess the effects that the corona pandemic is going to have on future market development. Based on the assumption that infection figures will remain under control and that the pandemic can be contained further, Greif & Contzen’s researchers express a cautiously optimistic outlook for the months ahead: They expect a decelerated growth trend for the Cologne|Bonn region with its industrial and logistics companies, property developers and domestic as well as international investors. Around 170,000 square metres of space may be taken up by the end of the year – a good result considering the corona situation, yet a decrease by one third compared to 2019.