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The home delivery boom is upending the real estate market. At the turn of the century, shoppers could wait as long as 28 days for delivery of goods they had bought online. The compression of that window to 24 hours or less is revolutionising logistics and turning industrial warehouses into desirable assets.
Singapore-listed Global Logistic Properties on Monday said it will buy warehouse owner Gazeley for $2.8 billion (2.4 billion euros). The deal follows two recent multibillion-euro transactions in European logistics, where China's sovereign wealth fund CIC and Singapore's GIC purchased warehouse groups Logicor and P3, respectively. All are betting on the future of online retailing, which requires three times as much warehouse space to fulfil orders as bricks-and-mortar businesses, according to Aberdeen Asset Management.
GLP, which already owns a $42 billion portfolio in the United States, China, Japan and Brazil, looks to have paid a full price to establish a foothold in Europe. GLP's return on investment based on the income the warehouses bring in is about 5 percent, according to people familiar with the matter. The comparable figure for European industrial assets is typically around 5.5 percent. The figure is also highly sensitive to the assumed value of Gazeley's bank of undeveloped land.
The price partly reflects the quality of the warehouses in Gazeley's portfolio. Approximately 60 percent have been built within the past five years, meaning they are less likely to need the expensive upgrades required to entice long-term tenants such as Amazon. And most of the development pipeline is in the United Kingdom, which is one of the most difficult European countries in which to secure suitable land.
But it also signals how attractive industrial real estate, previously one of the sleepier parts of the property market, is becoming to international investors. GLP will put the Gazeley portfolio into its fund management unit and expects to directly own approximately 15 percent after teaming up with sovereign wealth funds and institutional funds eager for exposure to the sector. That could compress yields further. For now, warehouses are the best way to profit from shoppers' online spending spree.
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