Fueled by the ongoing rise of e-commerce, and the need for sophisticated distribution networks and ever-more efficient supply chains, logistics is attracting strong interest from all real estate stakeholders across all markets. The environment is dynamic and the opportunities remain competitive.
Logistics has become, according to many investor surveys, one of the most preferred asset classes both in the private and public sphere for 2019. Capital is likely to continue being invested for a number of reasons: for instance, while logistics has become an excellent portfolio diversifier for institutional investors, as a sub-sector it is still less ‘institutionalized’ than sectors such as office, retail or residential.
In addition, in Europe returns remain very attractive on a relative basis to other sectors – about 150 bps + spread – and relative to bonds (about 450 bps spread). And increasing construction costs and land scarcity combined with historical lows in terms of vacancy rates are leading to upward pressure in terms of rents.
The focus is truly global, too. Asia benefits from several trends supporting the growth of the sector, including increasing exports, rises in domestic consumption, fast-growing middle classes, very strong e-commerce penetration rates and structural reforms. Japan, India, China and Australia currently dominate the focus, but peripheral Asian markets could soon move onto investors’ radars.
In China, the reorientation of the economy from an export-led model to a domestic consumption-based one, coupled with the region’s highest e-commerce penetration level, are very strong drivers for continued growth. In India, a fast-growing middle class and a dedicated government-led push on infrastructure and manufacturing are creating compelling opportunities for investors.
Amount of Allianz Real Estate’s €60bn AUM accounted for by logistics
Allianz Real Estate has itself materially increased its allocation to the logistics sector, both through direct and indirect investments, over the past few years.
Logistics accounted for €4.8 billion of the firm’s circa €60.1 billion in total AUM as of June 30, 2018. Since then the logistics investments of Allianz have rapidly increased by around another €1 billion, with further acquisitions around the globe. After further investments in Europe, we completed two logistics transactions in a short period of time in Asia: a 50 percent stake in a portfolio of core modern logistics assets in China; and a partnership with ESR Group in India. Recently, Allianz committed to invest around €150 million in logistics buildings in the Nordics and another €290 million in the UK, which underlines our trust in British real estate investments.
Challenges may be ahead, but overall outlook is positive
Looking ahead, the sector will not be wholly immune from challenges. The astonishing rise of e-commerce usage as well as increased global trade has helped drive the growth of the sector: an economic downturn or crisis will likely not only test the resilience of this sector but also the will of institutional investors, particularly those that may be overweight single sectors and not adequately diversified.
However, the commensurate rise of sub-sectors in the logistics industry, such as hi-tech smart distribution centers, more urban facilities and the demand for ‘last-mile’ logistical capabilities, means it is likely to remain a key investment opportunity for many years.
The dynamics reshaping the retail sector, away from the high street to online services and prime shopping centers, will continue to support logistics. Increased demand for more technological innovation – for example, drones or automated delivery methods – will also keep logistics very much in the headlines and in the minds of multi-sector institutional investors such as Allianz.