European warehouses attracted record investment last year as Internet retail growth boosted demand for storage space close to the homes of online shoppers.
Investment climbed by 28 per cent to €21.7 million, according to Jones Lang LaSalle. Anticipation of a prolonged rise in Internet retail has sparked competition for assets, causing average yields to narrow to 7.8 per cent last year from 8.9 per cent in 2013, according to broker DTZ Holdings. Average yields for the best offices in Europe stand at about five per cent.
"If you start promising your clients that you’ll deliver within 24 hours, then you need to be close to them,” said Dennis van Vugt, chief financial officer and chief operating officer at CBRE Global Investors, which manages $90.6 billion of real estate.
“That makes the sector hot.”
About 94 million square feet (8.7 million square meters) of new warehouse space will be needed in Europe by 2020 to cope with rising demand from Internet and food retailers, according to broker Savills. The industry will also benefit from productivity gains sparked by the European Central Bank’s monetary policy, said Joe Valente, head of research and strategy at JPMorgan Asset Management.
Warehouses represent “good yields with good corporate tenants,” Valente said. “The problem with logistics has always been how to source enough product, because the European market is dominated by three or four players.”
Investors including Blackstone Group LP’s Logicor have sought to buy large groups of assets to build scale quickly. More than 120 portfolios valued at about 10 billion euros changed hands in 2014, about a third more by number than a year earlier, JLL said.
“When you look at the evolution of the retail business, there are very strong needs for logistics,” said Pierre Vaquier, CEO of Axa Real Estate, whose European platform manages 1.8 billion euros of logistics property.
Axa Real Estate last week started Baytree Logistics Properties, a €100 million-euro venture that the company plans to grow into one of the biggest logistics and industrial property developers in Europe. Baytree estimated that institutional investors have about €7 billion targeting logistics.
More than half of the investment in European warehouses was in the UK and Germany last year, according to Savills. That may change because nine out of the 10 countries with the highest GDP growth forecasts are located in eastern and southern Europe, the London-based broker said.
Developers built 370,000 square meters of space without securing tenants last year, 67 per cent more than in 2013. Even so, the competition for assets is discouraging some buyers from investing in the best-located properties.
Capitalisation rates, a measure used to calculate yield on real estate investments for logistics properties in major cities, are “pretty tight,” said Scott Brown, Cornerstone Real Estate Advisers’ president and CEO.
The company is studying changes to the UK supply chain “to understand where it’s headed next” following changes in the U.S. logistics industry, he said.
Bloomberg News, edited by ESM
