The flow of money into the UK’s retail logistics sector hit a record high last year, as investors sought to ride a boom in ecommerce and shift cash from struggling office properties and shopping centres.
Large warehouses and last-mile delivery facilities have been among the winners of the pandemic, which has forced more shoppers online and led to the stockpiling of various essential goods and medicines.
Investment into distribution warehouses reached £4.7bn in 2020, according to property company Savills — 25 per cent more than the previous year and £500m more than the record set in 2014.
The biggest single deal was private equity firm Blackstone’s £473m acquisition of a logistics platform from the world’s largest warehouse company, Prologis, in October.
“Virtually every investor” was looking at the sector in 2020, according to Nick Preston, fund manager at Tritax, which invests in European logistics real estate. “It’s the biggest herd of wildebeests you’ve ever seen: far-eastern investors, European institutions [and] private equity players wanting exposure to the sector.”
The flurry of activity came despite additional hurdles to complete deals, with almost all capital markets activity grinding to a halt during the UK’s first national lockdown in March. Three-quarters of the deals struck in 2020 came in the second half of the year once the strictest measures had been eased, Savills added.
While high street chains have been forced to shut physical outlets, and offices face an uncertain future, warehouses have performed well over the past year and have attracted investment from institutions looking to pivot away from harder-hit parts of the commercial property sector.
As shoppers have shifted to the web — 36 per cent of retail sales were made online in November compared with 19 per cent in February, according to the Office for National Statistics — traditional retailers have scrambled for new warehouse space. Every extra £1bn spent online requires almost an additional 900,000 sq ft of logistics space, according to property company CBRE.
Amazon, whose vast marketplace has allowed it to ride the 2020 ecommerce wave, signed leases on a series of multimillion-square foot facilities around England last year.
That demand has been a boon for established warehouse owners. Shares in Segro, the UK’s largest logistics and warehousing company, have risen about 7 per cent since the start of 2020 and the company said on Friday that it collected 98 per cent of the rent it was owed by tenants for 2020.
In contrast, leading retail landlords including Hammerson, British Land and Land Securities have collected as little as half or three-quarters of the rent owed by tenants since the start of the pandemic.
Tom Scott, director in the industrial investment team at Savills, said investment levels were likely to remain high into 2021. “The supply and demand dynamics of the occupier market will continue to drive competition for the best assets, which in turn will generate strong investment volumes,” he said.
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