Parcel delivery centres attract new investor interest

Investors in EMEA are increasingly evaluating the benefits of parcel delivery centres for their logistics portfolios as changing market dynamics are significantly enhancing the return profile of this market segment.

According to new research by global property advisor CBRE, this type of property can command rental levels 40 to 50% higher than conventional warehouses.

The growth in online retailing is requiring retailers and distributors to invest in a specialist network of parcel delivery centres close to urban markets. This allows them to meet the growing need to deliver goods quickly, efficiently and without the larger storage space associated with traditional buildings. Recent CBRE research also found that 77% of retailers expect to offer smartphone websites by 2014 and 85% expect to offer free delivery in the near future. As internet shopping and next day delivery become more widespread across Europe, effective and efficient distribution networks which facilitate a reduction in handling costs will become paramount to retailer success, creating a real estate investment opportunity for institutions.

CBRE found that the relatively small scale of the sector and of individual assets has so far constricted the emergence of large-scale institutional investment. However, the expansion in leasing demand associated with the thriving e-commerce sector, and the resultant pressure on retailers’ supply chains, will lead to considerably higher interest in the asset type. This will present opportunities for investors to acquire assets at initially higher yields than are typical of conventional distribution facilities, and to benefit from yield improvement as the sector matures.

Due to the specialist nature of the properties and lack of availability, higher rents are required to make the development of parcel hubs viable. This trend is already apparent in the UK with the French parcel delivery company GeoPosts’ acquisition of two such properties in North London, paying a premium of between 45 to 50% above comparable traditional warehouses in the same area. In addition, the new report highlights evidence in the US and more mature European markets that retailers and third
party logistics providers are prepared to pay premium rents for parcel hubs, also known as ‘cross docks.’

Richard Holberton, Director, EMEA Industrial and Logistics Research, CBRE said:

“The growth in online shopping across Europe has been rapid and continues to rise. However, until now there has been limited investment into the types of cross-docked property that efficiently services the increasingly rapid delivery of items ordered online. As a result, we expect to see new interest from institutional buyers, and competitive pricing for well located, good quality assets coming to market. Evidence from the more mature US market indicates that unit values have established a profile similar to that for traditional warehousing, and we expect this to be reflected in the European market as it continues to evolve.”

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