Getting smarter with logistics will drive the sector forward

The profound, ongoing growth of e-commerce and the need for ever smarter supply chains means the global logistics sector continues to offer significant growth opportunities for yield-focused, long-term real estate investors.

Consumers and businesses are clearly enjoying the benefits of new distribution infrastructures – Amazon-announced net sales increased 24 percent to $70 billion in Q3 2019 versus Q3 2018. The rise of competitors such as Alibaba and Reliance Industries, both in their domestic markets but also on the international stage, underscores the ongoing need for sophisticated logistics facilities globally and the role that investors can play in catering for that demand.

Moreover, as the market has evolved and matured, the need for different types of logistics facilities with ever-more-sophisticated technological capabilities has also expanded – the focus is not just the ‘big box’ sites that can handle large volumes of goods but also the ‘last mile’ and urban depots that can get these goods to their destination more efficiently and quicker.

Urban outlook

Urban centers have, in particular, become a highly attractive investment sub-class in recent years fueled by the expansion of e-commerce. Urban logistics’ share of the total supply chain costs can be more than 50 percent in Europe, making it a priority for those seeking to gain a competitive advantage.

There has been, and will continue to be, strong demand in this area, with the redevelopment of existing buildings – including retail assets – a core part of the investment narrative. This can include the redevelopments or deep refurbishments of current sites in main cities and/or participation in large mixed-use redevelopments including housing, logistics facilities and even retail. Logistics has become a very hands-on asset class.

While there is a real lack, still, of land available for logistics purposes, in particular for extra-large developments in main logistics corridors, high-tech centers and last-mile facilities will likely be important catalysts driving the sector forward as we look to the next decade. For many investors, there is a focus on the sub-sectors in the industry as a means to maintain the growth momentum.

Allianz Real Estate has itself materially increased its allocation to the logistics sector over the past few years and expects to expand its footprint in select markets through direct and indirect strategies. Our logistics AUM increased from €5.7 billion to €6.6 billion – an increase of 20 percent – in the six-month period to end of June 2019, accounting for around 10 percent of our total global growth portfolio of €67.1 billion.

European AUM increased 12 percent, US by 4 percent and Asia-Pacific by 71 percent. In addition to widening its footprint across Europe, Allianz will look to diversify its logistics portfolio, striving to provide stable cashflows for stakeholders.

Overall, Allianz believes logistics demand should remain stable while strengthening the undersupply constraints, which is in line with the firm’s mixed investment strategy incorporating core, core-plus and development-to-core. This will provide income to secured assets while creating value to improve the average return.