Anyone keeping tabs on the logistics segment of the real estate market will now know it’s beginning to buzz again. Yesterday’s news that global logistics giants ProLogis and AMB Property are looking to merge into a $14 billion juggernaut only serves to cement that view.
Denver-based ProLogis has made significant inroads into its almost crippling debt pile by shedding as much non-core property as it can. It has more debt maturities coming over the next couple of years, but that hasn’t stopped it from reversing its ‘no new development’ stance in anticipation of good things to come. That decision was made well before news emerged of a merger with AMB.
ProLogis’ optimism is not unwarranted. Only a glance at Richard Ellis’ Global Industrial MarketView research demonstrates green shoots, the kind ProLogis/AMB and others out there are hoping to see and enjoy.
Global GDP contracted 1.95 percent in 2008 and 1.86 percent in 2009, the research said, but from then it has rebounded. Accordingly, exports – decimated at the end of 2008 – are on the comeback trail. In Asia, for example, they grew 37 percent in Q2 2010 alone and have continued to rise since.
CBRE says logistics yield compression already is reflecting a more positive outlook. Its Global Industrial Yields Index fell 37 basis points in Q2 2010 to 7.46 percent – the third decrease in as many quarters. Also prevailing is an increase in global industrial rents, which are expected to increase 1.5 percent this year and then 2.9 percent in 2012. “All regions now appear to be in recovery mode,” the firm wrote in its report. “As key economies recovered in the second half of 2009, a global inventory restocking process occurred.”
Further underlying the growth potential of logistics properties, specialist research firm Green Street Advisors in November said that, despite rising by more than 20 percent since early 2009, industrial capital values remain 25 percent below their 2007 peak.
ProLogis and AMB aren’t the only ones to see this. Investors and managers alike are increasing their exposure to the property type – including The Blackstone Group. In the past year, Blackstone has gathered a portfolio of 275 industrial properties, totalling approximately 45 million square feet of warehousing, 23 million of which was bought from ProLogis. A Reuters report noted that its logistics exposure could more than treble in the near future. That would mean a $6 billion exposure to the property type at least.
Sovereign funds are cottoning on too. Only last month, ProLogis’ largest rival, Sydney’s Goodman Group, led a high-brow consortium including Netherlands-based Algemene Pensioen Groep, China Investment Corporation and Canada Pension Plan Investment Board in a A$2.5 billion (€1.8 billion; $2.5 billion) bid for ING Real Estate Investment Management’s ING Industrial Fund, an Australia and Europe portfolio of 60 logistics properties.
Real estate’s ugly duckling increasingly is looking more attractive.