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Logistics real estate – a sought-after but scarce investment product

The importance of the logistics market has increased substantially over the last several years when it comes to real estate investments. However, the significant growth of e-commerce as well as bottlenecks in global supply chains have also resulted in a lack of investment properties. It is thus important that investments in logistics real estate are based on good partnerships.

September 2, 2022

Key takeaways

  • E-commerce and the resulting parcel volumes have increased significantly since the beginning of the pandemic and will continue to grow.
  • This has increased the value of logistics real estate and turned it into a desirable form of investment property.
  • However, because of more stringent requirements placed on location and plot quality, there are few suitable properties available.
  • Furthermore, studies show that e-commerce companies provide the required properties for themselves.
  • These developments have led to a shortage of logistics real estate on the market. It is beneficial to have a good network for managing such portfolios. 

More about CS REF LogisticsPlus

High parcel volumes present a logistical challenge

The COVID-19 pandemic has accelerated online commerce. Logistics centers have been inundated with parcels as never before. According to studies by the Swiss Post, the number of parcels increased by 23.3% in 2020 and a further 9.6% in 2021. The warehouses of online retailers have threatened to burst at the seams due to this additional strain. Many e-commerce companies have had to quickly recruit additional staff in order to accelerate product flows, reduce delivery delays, and in some cases even prevent a collapse of the business itself. 

Obstacles to increasing the size of logistics centers

The rate at which the size of logistics centers is growing has increased everywhere. Up-and-coming online retailers are doubling the size of new warehouse spaces. Prognoses also show that transport volumes will remain high even after measures taken during the pandemic are rolled back. 

In addition to growth, supply chain interruptions put additional pressure on logistics centers. Such interruptions have been caused by the war in Ukraine, ongoing pandemic measures in China, and the conflict in Taiwan. Bottlenecks in the overtaxed logistics infrastructure will therefore continue to be the norm.

Although triple the amount of logistics space is needed ...

The growth of e-commerce is also evident in the expansion of the market for logistics real estate. Whether large logistics centers, smaller distribution centers, or efficient reloading points, suitable real estate locations and “last-mile” solutions must be found in the logistics industry and online trade in order to satisfy customer expectations. Online trade requires about triple the amount of logistics space compared to traditional retail. Space is primarily sought in cities and the surrounding metropolitan areas as well as along main traffic routes. 

... there are few investment opportunities

However, an analysis of building applications from 2021 has shown that the majority of newly created logistics spaces were planned and built by the companies themselves. Investment opportunities in the market for logistics spaces will thus remain scarce.

Accordingly, the availability rate for investable logistics real estate was only 2.2% in 2021, and even lower for industrial real estate at 1.6%.  

Suitable properties are in short supply

Specific requirements placed on property location as well as size and structure of plots limit the number of available properties that can be used for logistics purposes. Furthermore, many municipalities have a negative stance toward project developments due to the expected increase in traffic volumes.

The consequence: higher prices for logistics spaces

As a consequence of the limited availability and high demand, the prices of logistics spaces have increased. In terms of attaining higher returns from capital growth, this development is positive. 

However, with rising prices, pressure is also placed on the net rental income (net cash flow yields), as it is tied to the fixed capital and has now reached a level that is not far from that of office spaces. 

Finding the right partner

You should also consider the value of networks and partnerships while looking for attractive investment opportunities. Both experience and an established market presence are benefits in the race for first-rate logistics investments, as they contribute to a robust market network. This is because logistics real estate, too, is a business based on personal relationships.

CS REF LogisticsPlus

The full offering documentations including complete information on risks may be obtained free of charge from a Credit Suisse representative or where available via Fundsearch (credit-suisse.com/fundsearch).

* The investment promoted in this marketing material concerns the acquisition of units or shares in a fund and not of any underlying assets. The underlying assets are owned by the fund only.

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