Global trends are generating consistently high occupational demand from tenants for logistics properties: they are the linchpin of online commerce and the digital transformation. At the same time, investments in logistics property present a number of specific risks.
The various real estate market sectors have been affected in different ways by the Covid-19 pandemic. However, there are also types of use that are profiting in the current conditions. In commercial real estate, the main beneficiary is logistics properties. Corporate real estate, for example in Germany, has also proved the most resilient to the crisis thus far, in addition to residential properties.
This makes sense. The Covid-19 pandemic has highlighted the importance of e-commerce and its growth potential. And logistics properties play a decisive role in this growth market. They connect producers with end customers, making them the department stores of tomorrow – whereby efficient warehousing, order-picking and distribution of goods are the keys to success. Logistics properties have experienced a surge in popularity over the past ten years. According to industry analyst PMA, the investment volume in logistics properties in Europe had already more than tripled between 2011 and 2019 and amounted to as much as EUR 41 billion last year alone. Global trends such as online commerce and digital transformation in production are driving increasing tenant demand in these sectors.
Invest in logistics property with the right strategy
Notwithstanding the current conditions, investments in logistics properties do entail certain risks. As there is only a limited number of large logistics companies, the potential tenant market is limited. Professional investors usually control this risk through property-specific features and measures. Swiss Life Asset Managers has developed a concept to mitigate the specific risk associated with logistics properties, including at portfolio level. It involves investing simultaneously in a market segment currently still overshadowed by logistics properties, but quite similar to them at the same time: mixed-use commercial properties. Consistent reletting is crucial in this segment. Broad tenant diversification and the capacity for alternative uses ensure stability in terms of income and value. The number of possible investments in this market segment is still limited, as the comparatively complex management involved puts many real estate companies off.
Mixed fund portfolios with industrial and logistics properties
It has not hitherto been absolutely necessary to mix the two market segments of industrial and logistics properties into one fund portfolio. However, that is changing and investors are now asking for a broader regional range. In doing so, they want to take account of the increased investment volume in both market segments – at least at European level. Against this backdrop, Swiss Life Asset Managers launched a product innovation for institutional investors just under a year ago. This approach promises above-average returns with below-average earnings volatility compared to pure logistics property investments. The fund combines large-scale logistics properties with small-scale light industrial properties. As a result, it comprises a larger number of properties. The combination of logistics and industrial properties in one investment portfolio results in high market liquidity and attractive earnings prospects. The large number of tenants from various sectors ensures broad risk diversification.
Find out more about the investment approach of Swiss Life Asset Managers here.
