Investor demand for logistics real estate is growing sharply thanks to the combination of e-commerce growth and demand for last-mile logistics and the abundance of institutional capital looking for ways to deliver sustained returns.
A growing trend of cross-border investment, particularly from Asia, is expected to expected to fuel increasing investment in logistics globally in 20018, according to the latest research from CBRE.
Strong interest in prime logistics assets continues in most industrial hubs around the world, with $85.8 bn (€72.7 bn) in total investment volume in the first three quarters of 2017 — an increase of 12% year-over-year. This has led to widespread yield compression, with 46 of the 64 global markets tracked by CBRE recording a decrease in prime yields since Q3 2016.
The logistics sector is poised for continued growth amid rapid e-commerce expansion and positive market fundamentals across all regions. This will continue to drive global demand and investment in the sector in 2018.
Overall, the prime logistics sector is performing well in the Americas, EMEA and Asia Pacific, supporting a healthy capital investment environment with steady yield compression in most industrial hubs. The logistics sector continues to be impacted by structural changes, such as online retailing, that have transformed global supply chains.
E-commerce operators require an estimated average of up to three times more space than traditional warehouse users due to a greater diversity in products handled and the need to have them immediately accessible. This has piqued the interest of global investors who continue to add industrial assets to their portfolios at lower cap rates, with the reasonable expectation that they will achieve immediate rent growth.
Asian buyers
There is a growing trend of cross-border investment into industrial real estate, especially from Asia. Despite Chinese government restrictions on overseas investments as of late 2016, Chinese investors have acquired more than $773 mln in US industrial real estate to date this year — equating to 89% of their US investment total for all 2016.
Asian capital has also been targeting Europe. In June 2017, sovereign wealth fund China Investment Corporation agreed to purchase Logicor, a pan-European logistics company, from Blackstone for $12.25 bn. The 12 million m2 portfolio of high-quality logistics assets spans 17 countries, with 70% of it concentrated in the UK, Germany, France and Southern Europe.
'Industrial demand and strong property fundamentals, particularly in this cycle, have piqued the interest of global investors, especially from China. Domestic wealth has grown significantly in China in recent years, and investors are seeking to diversify their portfolios with global acquisitions in the US and Europe. Competition for prime industrial properties is strong, and the volume of capital that is under-allocated in the industrial asset class has become increasingly aggressive,' said Jack Fraker, managing director of global industrial & logistics at CBRE.
EMEA had the largest decline in yields year-over-year. Prime yields decreased by an average of 35 basis points (bp) over the 12-month period (Q3 2016 – Q3 2017), with most European markets seeing a decline. Yields tightened the most in Paris/Lyon (-75 bps to 5.00%) and Munich (-60 bps to 4.50%).
