Warehouses and distribution centres have soared over the past year with the AIC’s Property – UK Logistics sector up 56% versus 22% for the Property – UK Commercial sector.1 Logistics property has played a critical role in enabling lockdown living, but with restrictions being lifted should investors continue to back the online boom or are there opportunities in retail and offices which now look attractive?
The Association of Investment Companies (AIC) has spoken to property managers about the prospects for warehouse properties versus wider commercial property, the investment outlook for shops and offices, and the suspensions of open-ended property funds.
Annabel Brodie-Smith, Communications Director of the Association of Investment Companies (AIC), said: “The strong performance of logistics investment companies over the past year reflects the crucial role e-commerce has played during the pandemic. Whilst investment companies investing in retail and offices have had a more difficult time, things are looking up with the reopening of retail and a gradual return to the office.
“Despite the challenges of the past year which have had an impact on some share prices, investment companies’ closed-ended structure has allowed investors to buy and sell their shares freely. In contrast, the major open-ended property funds were suspended for most of last year and some are yet to open. Investment companies provide a suitable structure for investors to access a wide range of property from Amazon-style warehouses to accommodation for the homeless.”
Richard Moffitt, Chief Executive Officer of Urban Logistics REIT, said: “We have seen unprecedented growth in the structural adaptation to e-commerce with it providing 50% of all retail sales in June 2020. It is inevitable that this structural shift will continue. All of our warehouses, bar three which closed for a few days at the beginning of lockdown, remained operational during the pandemic. We have received 100% of our rents for the last six months which is a good reflection of the importance of logistics buildings and the sectors our tenants operate in.”
Andrew Bird, Managing Director of Tilstone Partners Limited, investment adviser to Warehouse REIT, said: “Knight Frank Research estimate that the continuing online market penetration will generate demand for an additional 92 million square feet of warehouse space in the UK before the end of 2024. However, supply remains very constrained with the report estimating there is currently only 10 months of available stock. This acute shortage of supply will continue to drive rents from their historic low base (with Warehouse REIT’s prevailing average rent of just £5.50 per square foot). This will ensure the sector continues to outperform throughout the medium term.”