Feature: INVESTING IN LOGISTICS
The missing link A high-tech Cromwell-owned asset near Milan in Italy
The maturing industrial market is heading for greater polarisation, as factors ranging from trading routes to ESG metrics increasingly define the sector’s prime product. Isobel Lee reports
F
rom supply-chain jams to surges in e-commerce, the circumstances of the pandemic brought the utility of logistics assets into sharp focus. Yet the business case for investing in industrial properties predates the global health crisis, and is set to persist long after its effects, according to experts in the asset class. Robert Cotterell, head of investment, Europe & head of UK, Cromwell Property Group, says: “We calculate that due to rising online spending alone, over 6.5 million sq m of additional logistics space will be needed across Europe by 2026. Furthermore, reshoring activity and a shift from ‘just-in-time’ to ‘just-incase’ supply chain models will create additional occupier demand.” However, the fundamentals that
make the sector so attractive also complicate the picture for would-be investors. Cotterell adds: “Despite this strong demand, record low vacancy, a lack of developable land and high construction costs restrict the ability of the supply pipeline to respond. This means strong rental growth potential for well-specified and located stock and scope for yield compression on higher yielding product. The trick will be selecting assets that comply with future occupier and ESG requirements.” Investors who want to build a tradeable portfolio of high-quality assets need to be smart about finding value, according to Jack Cox, head of EMEA industrial and logistics capital markets, CBRE. “The successful investors are those which have a very holistic view of the sector,” he says. “Holistic in terms of the entry
points that they would consider — everything from greenfield and brownfield land through forward-funding, building up investment portfolios through portfolio and granular asset acquisition, and particularly, having an open mind towards recapitalisation.” For Cox, that approach also means taking a broad view of the way the asset class is evolving and requires a willingness to perform more complex underwriting. “In the past, logistics was about a spread over office yields, while total return was essentially an income play. Today, landlords can leverage the occupational market more strategically and differentiate their leasing strategies relative to the desirability of an end-user or 3PL for a particular building and whether single or multiple tenant occupancy is preferable.” Anne Kavanagh, chief invest-
ment officer of Patrizia, says the firm has been “strong believers in the sector for many years now”. She adds: “The shift towards ‘last hour’ logistics, as well as demand tailwinds from emerging subsectors such as dark kitchens, q-commerce that brings small quantities of goods to customers almost instantly, and cold storage have increasingly shifted the occupier demand balance towards urban/infill locations and has driven strong rental growth, in particular for the more urban micro locations.” Kavanagh suggests that this urban focus will keep Patrizia busy for the years to come. “Identifying well-connected urban locations with high purchasing power is one of the most topical focuses of modern real estate investment strategies in Europe today,” she says. “With limited land availability and competition for strategic loca-
MIPIM PREVIEW • 67 • February 2022 MIPIM_Logistics_+D_+S.indd 1
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