The logistics property sector has emerged from the shadows to become the most sought-after real estate asset class.
A survey of international investors by CBRE confirmed that the sector was top of their shopping list for 2018, overtaking offices for the first time. The broker believes this shift clearly reflects the growth in e-commerce, which is driving demand for both mega-hubs and local warehouses to service the ‘last mile’ of delivery operations.
Jack Cox, CBRE’s head of EMEA industrial and logistics capital markets, said: “2017 was the year the industrial and logistics sector was unquestionably re-rated, evidenced by the number and scale of platform deals we saw in the sector. Logistics yields remain at a premium over other real estate sectors, and the sustainability of returns in the sector is underpinned by a robust occupational market, which is attracting investors from around the globe.”
Chris Bell, managing director, Europe, at Knight Frank, echoed this view: “The logistics and industrial sector had an outstanding 2017, with investment volumes rising 42 per cent year-on-year to a record €38.9bn, or 17 per cent of the total commercial market,” he pointed out.
“Volumes in this sector were boosted by CIC’s purchase of Logicor for over €12bn and GLP’s acquisition of Gazeley for €2.4bn. As well as demonstrating the strength of demand for logistics property, these deals are also indicative of the appetite for platform and portfolio deals from investors seeking to deploy large volumes of capital into real estate.”
It’s not just advisers spotting this trend – investors are already on board. Aberdeen & Standard Life’s head of Continental Europe, Andrew Creighton, said: “Logistics is a very interesting area for us to invest in and we foresee strong growth in this market and we’re looking for assets with durable income streams and the ability to grow rents.” And Ken Baccam, director of research at AEW, explained: “Occupier markets are showing better market rental growth as new supply remains modest and net absorption steps up with improving consumer spending and employment growth. E-commerce is a key driver for both the bifurcation in the retail markets and the new record take-up across logistics.”
However, constraints on supply mean investors may find it hard to deploy all the capital they would like to place in logistics. This issue is particularly pressing in Germany, a key logistics market at the very heart of European distribution networks, according to Jurgen Diehl, managing director for Germany at specialist logistics developer P3.
“In the near future, the government won’t allow any more development on greenfield,” Diehl said. “It doesn’t want to waste too much more greenfield on settlements or industrial buildings. They want to re-use and redevelop land.”
“So, you can see where we are going at the moment and this is crucial given the lack of land we have in Germany,” said Diehl. “We’re doing more brownfield redevelopment in Germany, because it paves the way for growth.”
Written by Graham Parker at MIPIM News.
Top photo © stockvisual/GettyImages
