TRUE: Online shopping was convenient and the only option during lockdown. As a result, e-commerce sales accounted for over 30% of total retail sales in 2020, this is an increase from 22% in 2019. This has translated into increased demand from retailers for warehouses. It is worth mentioning demand for industrial is not just limited to retailers, 2020 saw demand from a diverse range including courier firms, healthcare and manufacturing. Although the development pipeline has made some headway in relieving some of the supply constraints in certain parts of the UK, the sheer level of demand means supply is still trying to catch up. The race for space is on. Industrials is drawing interest from a wide range of investor types. Investors are particularly keen to get their hands on urban logistics, distribution hubs and multi-let industrial sites.
FALSE: Not quite. The logistics sector has fast become the shining beacon of commercial real estate. In 2019, the level of investment attracted by the logistics sector overtook the retail sector. In 2020, despite COVID-19 the sector continued to attract investment, close to record levels with £8.5bn (up 10% y/y).
But the logistics sector has not overtaken offices yet. Latest data from BNPPRE shows the industrial sector made up a fifth of all investment into the UK. Offices, despite the headwinds accounted for 30% of total investment volumes in 2020. Ten years ago industrial and logistics only accounted for just shy of 10%.
With the rapid acceleration of e-commerce the logistics sector is the primary beneficiary, pushing logistics to become the most desirable asset.
According to the latest INREV Investment Intentions survey the logistics sector is fast becoming popular, with 85% of investors and funds showing a strong interest in the sector, but 84% of investors continue to also prefer offices.
Logistics' returns are much more favourable than that of offices in the medium term, as demand for offices is more prone to volatility of economic cycles, however, supply is what will hold back the logistics sector. Development has responded to demand but due to the difficulties in accessing finance for speculative development supply has remained relatively modest. In addition, logistics only makeup a fifth of an investor portfolio with offices still accounting for about half. It will take some time before logistics overtakes offices.