Industrial real estate was historically the grafter of the real estate market, the small, often hidden part of a manager's portfolio.
It was the ugly duckling for many reasons; it offered lower growth, invariably more supply risk leading to benign rental tension over the cycle, and the assets were functional yet as generic in Slough as they were in Sunderland, making it difficult to deliver a sustainable edge as a landlord.
In recent times that has changed, specifically for logistics assets. The attraction of the sector has been accelerating, pushing both capital values and rental growth to new all-time highs, as a record number of tenants look to enhance their e-commerce offering, or make the transition to move their supply chain into a profit centre and central to business strategy and away from being a cost centre.
Consumer behaviour, technology and infrastructure have rapidly evolved as consumers want more convenience, greater reliability on efficient technology and a better return on that finite resource, their precious time.
This has led to an explosion in e-commerce, with high-tech logistics distribution warehouses close to the consumer enabling the shift.
There has been exceptional growth in demand as tenants seek longer lease agreements for the same highly-prized locations, which are frequently owned by the same few landlords, most of them listed. It is fair to say logistics assets have been eating the lunch of the traditional retail landlord in the process.
Since 2007, growth in the European logistics sector has outpaced overall economic growth (75% versus 20%) and studies show that for every €1bn in online sales, 125,000sqm of logistic space is needed.
In a post-Covid-19 world, we expect e-commerce penetration will accelerate as those consumers who were previously unsure have been forced to trial the e-commerce experiment and are likely to be converts.
By 2021, roughly 93% of UK internet users are expected to use online shopping, making it the highest online shopping penetration rate in Europe, which will continue to underpin this dynamic real estate sector.
James Maydew is head of global listed real estate at AMP Capital
• E-commerce and supply chain reconfiguration likely to become more prevalent
• Owning the best-located assets close to a growing and wealthy consumer base means the land would also have value in alternative uses
• Risks in buying the theme and not the fundamentals
• A challenging economy will slow the industrial real estate sector