The logistics property sector in the Euro zone is expected to continue delivering strong cash returns to investors over the medium term, according to Aberdeen Property InvestorsÃ¢â¬â¢ (Ã¢â¬ÅAPIÃ¢â¬Â) latest research. API, the leading international real estate investment manager, which manages the Ã¢âÂ¬252 million logistics property investment vehicle CÃ¢âÂ¬LOGIX Property Fund, believes that despite the subdued occupier market in some European locations, prospects in Southern Europe in particular, look attractive from 2004 onwards.
Factors expected to sustain growth in the market include:
- growth in the logistics industry is expected to outstrip Euro zone GDP;
- increased outsourcing in EuropeÃ¢â¬â¢s less well-developed logistics markets should sustain occupier demand; and
- the appetite for the cash producing nature of logistics property from the institutional investor and private buyer market
Investors are increasingly turning to opportunities in European logistics property attracted by the relatively high yielding nature of the sector. Some funds have seen logistics warehouses as a way of bringing cash flow and stability to balanced funds which have over-exposure to under-performing office assets.
But API observes that the logistics sector is not without its pitfalls and the very factors that have encouraged investors to enter the market can rapidly change. Nico Tates, CEO of API Continental Europe, comments: Ã¢â¬ÅInvestors have undoubtedly been attracted to the income and stability offered by logistics property. And we expect healthy income growth in the main logistics centres in the Euro zone. But landlords will have to work increasingly hard to satisfy the needs of occupiers who are operating in an extremely competitive sector of the global economy.Ã¢â¬Â
The logistics industry continues to change
The evolution of the Ã¢âÂ¬710 billion European logistics industry has been the factor behind the emergence of the logistics property sector as a significant niche on the European property investment scene over the past 10 years. The industry is now estimated to be worth approximately 8% of GDP of which more than a third is outsourced. (Source: Invest in France Agency)
The logistics sector has grown as producers and retailers have chosen to focus on their core businesses and outsource logistics. Supply chain management is now seen as a key ingredient in business success or failure and not simply as a cost. Consolidation within the logistics industry itself has taken place at great pace since the 1990s and though it has slowed down in the past year to 18 months, it looks set to be a continuing industry theme. To a certain extent, the line between mail and express logistics on the one hand and third party logistics on the other has blurred as industry consolidation has gathered momentum.
Euro zone warehouse property holding up
Logistics is often bundled together with other Ã¢â¬Åstandard industrialÃ¢â¬Â property. In the recent past, it has often been overlooked in investment analysis, but logistics property is moving out of its niche to become a new sector in its own right. Moreover, investors have been attracted to logistics in increasing numbers because it is seen as less risky than office and less expensive than retail.
The attractions of the sector can be seen from the performance of the sector in the first 9 months of 2003. Whilst occupier demand has slowed, prime rents have remained relatively stable in the major Euro zone warehouse markets in particular. Clearly, in some German markets rents are falling and will continue to do so, notably Berlin. But despite a fall-off in occupier demand, in markets like Germany and Spain, yields are still under downward pressure from investor interest in the sector.
There are clearly emerging themes, which will impact on growth in some markets and determine the fate of older obsolete buildings. The demand from customers for industry consolidation and cross border service provision will influence the scale of the logistics industry and the si