Logistics: retailers’ new front office

Executive Summary
 

  • The consumer has taken power in the retail industry which has put retailers on the backfoot and caused a structural rethink of the traditional business model. Omni-channel retail1 has emerged as the likely winning model. It requires a seamless supply chain that integrates warehouse and store stock through advanced inventory management software to deliver goods as and when consumers want, which is what they have come to expect.
  • This fundamental shift in the retailer model has required a structural shift in the way goods are transported and managed so that retailers can respond effectively to the modern consumer’s demands. Omni-channel retailer models have resulted in a surge in demand for logistics space. With e-commerce penetration expected to continue to rise, we believe there is pent-up demand for logistics stock that supports the omni-channel retail model.
  • With some warehouses as young as a few decades old not necessarily capable of catering to the demands of the omni-channel retail model, there is increasing concern regarding the obsolescence of logistics assets. However, we argue that the quantum of users requiring the absolute latest in supply chain solutions remains rather small, and that obsolescence risk may be mitigated by investing in a large, diversified portfolio of modern logistics assets in land-constrained locations close to key population centres.
  • There have been differing trends in rental value growth in the US, the UK and Continental Europe, with growth weaker in the latter. However, with further yield compression likely to be limited, we think the pressure on rents will increase as the supply of land for industrial use is becoming scarce and prices have started to increase significantly. As real estate costs account for a limited proportion of the overall cost of supply chains, we think above-inflation rental growth will be achievable in Continental Europe.
  • Ultimately, we see this as an attractive late-cycle investment strategy, underpinned by strong income growth prospects driven by the structural shift in demand that should result in a level of resilience even if a wider economic slowdown materialises. That said, the amount of capital targeting the asset class is significant and stock selection will remain critical to long-term performance, with assets proximate to key population centres and in land-constrained areas expected to have the strongest return prospects.

This article shall not be deemed to constitute investment advice and/or tax, accounting, regulatory, legal or other advice and it should not be relied upon as the basis for a decision to enter into a transaction or as the basis for an investment decision. This article is for informational purposes only and does not constitute, on AXA IM’s part, an offer to buy or sell, solicitation or investment advice. The services are not being offered in the U.S. or to U.S. persons. The information set forth herein does not purport to be complete and is subject to change without notice. This article does not take into account the recipient’s objectives, financial situation or needs.
Analysis and conclusions express the views of AXA IM – Real Assets and may be subject to change without notice. All information, analysis and conclusions herein present AXA IM – Real Assets’ current knowledge and market estimation at the time of its production. Nevertheless it can come to unintended erroneous statements or presentations and the information may change at any time without previous announcements and/or notices to the recipient of this article. Thus, a liability or guarantee for the up-to-datedness, correctness and completeness of the allocated information, estimation and opinion cannot be assumed. Furthermore, due to the subjective nature of these analysis and opinions, these data, projections, forecasts, anticipations, hypothesis and/or opinions are not necessary used or followed by AXA IM’s management teams or its affiliates, who may act based on their own opinions and as independent departments within AXA IM.
Any hypothetical illustrations, forecasts and estimates contained in this article are forward looking statements and are based upon assumptions. Hypothetical illustrations are only an estimate and AXA IM – Real Assets assumes no duty to update any forward looking statement. This article also contains historical market data; however, historical market trends are not reliable indicators of future market behaviour.
Although some information has been provided by AXA IM – Real Assets, the information is based on information furnished by third parties the accuracy and completeness of which has not been verified by AXA IM – Real Assets. While such sources are believed to be reliable and accurate, none of AXA IM – Real Assets or its respective affiliates, directors, officers, employees, partners, members or shareholders assumes any responsibility for the accuracy or completeness of such information.
Prospective investors must understand, investigate, evaluate and assume the risks of an investment. Certain risks cannot or may not be mitigated and are outside of a manager’s control.
There can be no guarantee that any investment strategy presented will be implemented or ultimately be successful.
AXA IM – Real Assets makes no representation or warranty (express or implied) of any nature nor is responsible or liable in any way with respect to the truthfulness, completeness or accuracy of any information, projection, representation or warranty (express or implied) in, or omission from, this information.
By accepting this information, the recipient of this document agrees that it will use the information only to evaluate its potential interest in the strategies described herein and for no other purpose and will not divulge any such information to any other party.
© 2019 AXA Real Estate Investment Managers and its Affiliated Companies. All rights reserved.