Logistics real estate is likely to continue its positive trajectory thanks to the lockdown-generated e-commerce boom – but also due to failings in supply chains during the crisis, property executives suggest.
‘We see the current crisis accelerating a number of trends that were in the property world globally,’ says ex-Gramercy Property Trust veteran Gordon DuGan. ‘Eventually this is to the benefit of industrial real estate, as people see that supply chains need to have a bit more redundancy in them and require a little more space for stock.’
DuGan has just launched a new business, Blackbrook, in partnership with Arvi Luoma, formerly of WP Carey, with a focus on ‘business critical’ assets such as logistics, last mile and cold storage property.
‘It has long been noted that Europe has a shortage of last mile and logistics assets,’ Luoma added. ‘E-commerce on the continent has lagged the UK in terms of deliveries. The current climate is likely to push forward logistics development, along with more businesses using the hub and spoke strategy of warehousing and distribution.
'Another aspect is the speed of delivery – if everyone is at home, people demand things more quickly, and this becomes self-perpetuating as it becomes the accepted norm,’ Luoma notes.
Tjard Martinus, head of retail research, EMEA, JLL agrees. ‘The European retail markets are witnessing an accelerated shift in retail spend towards online due to the impact of Covid-19. This elevates the importance of supply chains and warehouses as critical nodes within supply chains.
‘Long-term, for investors, logistics real estate that is part of a resilient supply chain will become even more investible. This includes buildings that are well-positioned for last mile urban logistics, to fulfil online sales in a financially sustainable manner for retailers.’
Umut Ertan, founder and partner of Germany’s Realogis-RLI Group, also affirmed that Covid-19 epidemic looked likely to unlock a ‘massive’ capital reallocation towards logistics.
Over 100 institutional investors and family offices contacted by Realogis-RLI have confirmed their intention to increase the proportion of capital allocated to logistics in the near future.
‘Many are thinking about scaling back their investments in offices and business centres, large-scale specialist retail spaces, shopping centres and hotels or even eliminating them altogether,’ Ertan noted. ‘Over the next 12 to 18 months, logistics will see an unprecedented run in terms of capital reallocation.’