Logistics real estate has delivered a higher direct return over the last 10 years than the other two main property segments, new research indicates.
Logistics real estate has delivered a higher direct return over the last 10 years than the other two main property segments, new research indicates.
In a paper entitled 'Opportunities in the European Industrial Property Market', global industrial property specialist Prologis says logistics has delivered 7.6% in direct returns over the period, some 200 and 240 basis points higher than the direct return component of office and retail respectively.
This compliments the finding that European industrial real estate is attractively valued. From the pre-crisis peak in 2007 values declined 21.9%, and have subsequently only recovered by 1.3% on average. Current values are attractive relative to replacement costs and the pattern of value recovery in the US following the global financial crisis, Prologis said.
Despite weak GDP growth in the EU - just 1.5% per annum over the last 10 years - trade and supply reconfiguration are expected to drive strong demand for distribution space in Europe. The US market has more than four times the Class-A distribution stock relative to Europe, where Class-A logistics assets account for only 14% of industrial stock.
'The European logistics property market is therefore relatively underdeveloped,' Prologis said.
E-commerce is increasing, requiring retailers to re-evaluate their distribution channels to support demand and expected growth. Every additional EUR 1 bn of online sales resulted in an average additional warehouse demand of approximately 72,000 m2 in the UK, Germany and France over the last five years.
Ali Nassiri, vice president, acquisitions and research, Prologis Europe said: 'Over the long term, the industrial property sector has proven to be a solid and defensive asset class, with an attractive risk-return profile to institutional investors. Industrial space is a key contributor to productivity enhancement, cost reduction, and overall supply chain strategy. The on-going drive for greater operational and cost efficiency will benefit industrial real estate, fuelling the sector through its recovery in the near term and into the future.'
