Industrial real estate as a more profitable alternative to retail properties
Industrial real estate, which includes warehouses and distribution centres, is among the most profitable categories of investment properties. They have the highest yields,
Technological advances have made the prospects of such properties even more interesting. With fully automated goods delivery, in the next
13-minute delivery will revolutionise logistics
Personnel costs make up to 50% of logistics costs. When
- In April 2016, the Dutch Ministry of Infrastructure and the Environment tested
12 self-drivingtrucks, which crossed four European borders and travelled over 2,000 miles.
- Amazon made its first drone delivery on 7 December 2016 in 13 minutes. Its Prime Air program, currently under development, will deliver purchases of up to 2.3 kg in weight within 30 minutes of ordering.
- According to the South China Morning Post, Shentong (STO) Express already has robots working around the clock, sorting up to 200,000 goods per day at its warehousing facilities in Hangzhou. This has enabled the company to halve its operational costs and improve efficiency by 30%.
According to Boston Consulting Group, robotic engagement in logistics will increase from
Cheaper and quicker deliveries will in turn stimulate online retail. According to Savills, this will make
Together with my counterparts who work in retail real estate, we tried to calculate how much of the price of a product in a shopping centre was from logistics costs, including rental, freight handling and marketing, and got a figure
of 20–30%.in my opinion, nothing will make people leave the house to go shopping as soon as goods can be delivered autonomously.
According to Colliers, the volume
New requirements for industrial property
Technological advances and a shift towards electronic retailing will change how Industrial real estate, which includes warehouses and distribution centres, are traditionally used.
1. Larger distribution centres
“If you look at the history of development, up until 5 to 10 years ago, a 500,000 ft² building used to be considered
According to the company,
2. Multilevel and multistorey warehouses will increase in number
According to CBRE, if land costs comprise 50% of the warehouse construction cost, the developer should increase its height and make the building multilevel or multistorey for it to be economically viable. While it is difficult for people to use such warehouses, automation makes storage, unloading and packaging easier.
According to Colliers, the ceiling height at US distribution centres increased by 25%
3. Demand for "last mile" warehouses will grow
As large distribution centres proliferate, the demand for the "last mile" warehouses (from where goods are delivered directly to the buyers) will increase, and
According to CBRE analysts, such warehouses, which will be up to 200,000 ft² in size, must be located within the limits of a densely populated city to ensure the delivery of goods to buyers within a few hours.
4. New uses for warehouses
Experts predict a partial crossover between warehousing and retail property. For instance, shopping centres in large US and European cities often have parcel lockers –
Savills analysts believe that new warehouses must have the possibility to be used differently. As a result, hybrids of industrial facilities, distribution centres and retail, with more space for data centres, photo studios and offices will emerge. Vacant spaces can be let or sublet just like in business centres. Under these circumstances, facilities that can be refurbished to accommodate market requirements will be in higher demand.
The opportunity for investors
According to estimates by Colliers, China, driven primarily by population growth, will have the highest demand for warehousing facilities globally over the next five years, which equates to a need for up to 527 million ft² of new facilities per annum. This is followed by the US (135 million ft²), India, the United Kingdom (UK), Ireland, Australia, Western Europe, Mexico and Turkey. In its Q1 2016 report, JLL recognised France, Croatia, Poland, Romania and Slovakia – countries where prices for such properties run at less than
In the future, retail property will be exposed to serious risks as new technologies change the landscape of commerce. While warehouses are currently cheaper than retail sites, their value (cap rate) will be increase in the next 10 to 15 years and gradually approach that of shops and retail centres. We are already seeing warehousing property gaining ground in terms of potential yields and investment relevance.
Tranio recommends investing in warehousing properties that cost upwards of €2.5 million. Cheap properties often have high risks, including an unfavourable location, poor condition, or a small operator that will "eat up"
Yulia Kozhevnikova, Tranio.com