Investors could be in danger over-emphasising the impact of e-commerce on the logistics sector, delegates at this year’s Expo Real conference in Munich heard.
With logistics enjoying significant interest from investors, the effect of e-commerce is under constant evaluation. Online retail grew by 16% in Europe last year alone, according to Patrizia Immobilien – which recently launched a logistics business.
Speaking on an Expo Real panel chaired by IPE Real Estate editor Richard Lowe, Towers Watson consultant Paul Jayasingha said there is a risk that investors “overplay” e-commerce and its influence on rental growth.
Jayasingha said he was yet to see clear evidence that increased market rents are linked to e-commerce, which he said has been on an upward trend for a decade.
Logistics rents, however, have only been rising post-financial crisis, he said, adding that any correlation therefore seems weak.
“There’s a bigger link to the general business cycle,” Jayasingha said.
Co-panellist, David Buck, USAA Real Estate managing director of industrial development, said logistics – the “backbone of the economy” – was undergoing significant change.
“Technical advances and how buildings are equipped are not unique to the logistics sector,” Buck said. “The same applies to offices or multifamily sector – there’s always the question of obsolescence.”
Europe, he added, can learn from the more advanced US market.
“When you consider building design characteristics, there are lessons to be learnt from the US historically,” Buck said, adding that the “less mature” continental Europe currently offers more opportunity than the US.
Prologis head of capital deployment Joseph Ghazal said that, with the logistics sector undergoing an improvement in specifications, e-commerce was not the sector’s only structural driver.
The firm, he said, was focused on selecting the right locations when investing.
“We buy for location, not yield,” he said, predicting more yield compression for the sector and a “second wave” of investment.
“The market has moved in the past two years, but there is still room for cap rates to come in,” he said. “We are still nowhere near the peak rents of 10 years ago.”
Jayasingha said Towers Watson is advising clients to adopt a “multi-year plan”.
“We advise clients to be more selective at this point in the cycle,” he said. “It’s very easy to chase yield and we would rather advise strategies that don’t overstretch at this point in the cycle.”
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