The logistics property sector can be a safe haven for investors in the face of the uncertainty caused by the war in Ukraine. That was the assessment made by an expert panel at the first leg of QuotedData’s Round the World webinar series focused on Europe.
Russia’s invasion of Ukraine has seen heightened market volatility in recent days and weeks. Matthew Norris, head of real estate securities at Gravis Capital Partners, said that the increased uncertainty should see investors flock to “safe haven” assets, and that logistics real estate was one such one.
Evert Castelein, fund manager of Abrdn European Logistics Income (ASLI), agreed adding that the dynamics supporting substantial growth in the sector over the last few years were unlikely to change. “We will certainly see stock market volatility, but what is really relevant for us is that the fundamentals of the sector won’t change.”
Castelein pointed to the inflation-linked leases that are commonplace across the European real estate sector as one of the fundamentals. The inflationary pressures that are likely across Europe due to the war – on top of the already growing inflation – will be captured in rental income, he said. All of the leases in ASLI’s portfolio, for example, are linked to inflation, with around two-thirds uncapped – meaning annual uplifts in line with the relevant index will be imposed.
Norris added: “That is a key attraction to investing in logistics real estate – contractual rental income that is growth income, not fixed income.” Both panellists said that they expected to see strong rental and capital value growth in the medium term.
“We are in the fourth industrial revolution right now,” Norris stated. “It’s all about technology and artificial intelligence, internet of things and mobile data, which has changed our lives dramatically. The way we work, play and live has changed.
“We are all online shoppers. The pandemic accelerated the rate of change and forced more of us to become online shoppers. Repetition of those functions has become habit forming. This is a massive mega-trend at play that is really favourable for logistics.”
Urban logistics is a sub-sector that has the greatest growth potential on the continent, according to Castelein. “Parcel delivery specialists are all competing with each other over delivery times so they need to be as close to the end consumer as possible. Rent is a very small portion of their overall operating expenses – transportation and labour costs are so much more important.
“That’s why we want to be here [in the urban logistics sector] and why it has the highest rental growth forecasts. Europe is slightly lagging the UK, but that just means the opportunity sits here because a lot of growth is still to happen.”
Norris said that he expects the online retail penetrations rates that have been witnessed in the UK to be replicated across Europe.
“Consumers want choice, price transparency and convenience,” he said. “Those three drivers have driven the UK to 25%-plus e-commerce penetration rates. I think consumers across Europe will also appreciate convenience, price transparency and choice. I do think we are going to see increasing demand.”
The Round the World webinar will continue tomorrow (Thursday) with the Americas day where we have Abrdn Latin American Income Fund, Middlefield Canadian Income and Ecofin US Renewables Infrastructure Trust appearing. Click here to register.