Industrial and logistics assets are now firmly at the heart of core investment strategies and, according to Savills, have accounted for a record 20% of the total investment volume into real estate in the first half of this year.
For the first time last year, volumes of investment into the global logistics sector overtook transactional activity into the retail sector, and industrial yields are now on a par with the retail and office sectors, the firm saif.
'The current global ecommerce boom, accelerated by consumers shifting their purchasing online throughout the pandemic, has been a major catalyst for this sector’s growth,' commented Paul Tostevin, director, Savills world research.
Forecasts from the Centre of Retail Research predict that online sales will grow by 31% in Western Europe in 2020. This will push the average ecommerce penetration rate from 12% to 16%.
In the US, the same figure is expected to reach 14.5%, an all-time high, according to eMarketer. Both markets however have some way to go until they reach China’s ecommerce penetration level, which stands at 27%, and illustrates the growth potential to come.
'Ecommerce isn’t necessarily the sole factor boosting demand,' adds Paul Tostevin. 'Recent supply chain disruption, coupled with escalating trade wars is leading to supply chain diversification, boosting demand for industrial and logistics space in strategic locations closer to the major consumer markets.'
Yield and investor journeys
As investor competition for logistics and industrial assets intensifies, prices have risen and yields have compressed. Savills research states that, between 2007 and 2017, global industrial yields averaged 7.5%, 70 basis points (bps) above average office yields.
Yet, in the second quarter of 2020 industrial yields had moved in to 6.1%, just 10 bps above global office yields.
Kevin Mofid, director of Savills iIndustrial and logistic research said: 'As the sector has matured, there has been a shift in investor composition towards institutional capital and portfolio deals have accounted for a larger slice of the market, attracting price premiums.
'Former developer traders now see the income opportunity and have become developer holders. The major funds and REITS are attracted to the sector’s long term income streams and there’s a growing scarcity value as stock is being held for longer.'
Global gains
Savills noted that the market in China remains extremely resilient, with logistics volumes in the first half of 2020 reaching 80% of 2019’s total. India, meanwhile, is emerging as an alternative manufacturing destination to China, helped by low labour costs, trade openness and a business friendly government, backing its logistcs appeal.
'The growth of the logistics sector is a truly global story and it is now proving to be one of the most resilient asset classes through this global economic downturn,' said Marcus de Minckwitz, director, Savills Regional Investment Advisory, EMEA.
'There is unprecedented levels of investor demand and in the West this has been driven by Amazon and major national players. We may now see a whole new wave of demand from the big Asian players heading West. The ongoing challenge for investors will be finding opportunities.
'With many rebalancing their asset allocation strategies toward the industrial sector, competition for completed assets will remain fierce,' de Minckwitz concluded.
