Logistics, an essential asset class

“The asset class has become essential in the core of the portfolio or in the pocket of diversification. It must be said that its infrastructure asset properties offer incomparable access to structuring megatrends for the real economy,” notes Olivier Ayadi, acquisition manager of the Nao Logistics fund.

To illustrate this point, 23% of the volumes invested in real estate, in 2022, were made in industrial assets (17% in logistics assets, 6% in business parks). Investments in offices, traditionally dominant in France, represented only 50%, whereas they regularly reached 70% during the 2010s*.

Indeed, investors buy the prospects for this asset class in the very long term and the robustness of the fundamentals that characterize it: in particular the supply-demand imbalance, as illustrated by a very low vacancy rate, supported by the boom of e-commerce.

“The real economy has shifted into the digital age and e-commerce is undoubtedly the most striking expression of this. Traditional demand also remains dynamic, mass distribution and specialized distribution have reinvented their supply chain. Manufacturers, for their part, want to increase their safety stock and relocate part of their supply chain since the Covid crisis”, analyzes Jean-Michel Frammery, general manager of logistics development at Telamon.

In the top 3 real estate asset classes

“Faced with the substantial infrastructure needs of logisticians, we are seeing very low vacancy (around 4% in France) on the rental market. There is unprecedented upward pressure, in the medium to long term, on both rental prices and the market values ​​of assets. This lasting tension supports strong visibility and offers security on returns to investors,” confirms Yvan Gril, investment and asset management director at Telamon.

As such, the asset class is increasingly perceived as a safe haven due to the indexation of rents to the ILAT, an index which is partly based on inflation. Also due to a relatively attractive risk-return profile, coupled with reduced volatility, compared to other segments.

“The obsolescence of a logistics warehouse is slower than that of an office, while the rotation of tenants is generally less strong there, the occupants settling there on average for more than 10 years. It should also be noted that the ‘rent’ item of a logistics operator represents on average 5% of its total expenses, which makes it relatively insensitive to an increase in the value of rents”, underlines Yvan Gril.

In short, logistics has established itself in the long term, in 2022, in the top 3 real estate asset classes in France, in terms of transaction volumes.

“To draw up the profile of the typical asset sought by investors: the class A building is a guarantee of securing returns, because it is appreciated by different types of users because of its construction standards. Therefore, this type of asset is easy to lease and liquid when resold. Environmental certification such as Breeam very good and a location on the Lille-Paris-Lyon-Marseille backbone, which represents 77% of demand in 2022, are all attractive criteria,” summarizes Olivier Ayadi.

In 2022, 75% of investments were made by foreign players, proof, if any, of the attractiveness of the domestic market, while French investors are still too little present.

Beware, however, of the powerful valuation movement observed at the start of 2023, which gradually reduced the risk premium of the logistics segment, compared to risk-free rates. However, well understood,

the asset class remains very attractive compared to other institutionalized asset classes such as office. The success of this asset class will depend on the expertise of the asset manager.

* Study The French real estate markets 2022 report and 2023 outlook by Knight Franck, JLL Industrial & Logistics Keynote 2023 BNP REIM Logistics markets in France, business premises in Île-de-France and investment in France – February 2023.

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