UK's retail logistics sector booming

Investment in warehouses and storage facilities in the United Kingdom is booming with the shift to e-commerce creating record levels of demand for space to store retail goods for distribution.

Property company Savills reported that investment in the logistics sector was up by 25 percent last year, reaching 4.7 billion pounds ($6.35 billion), which eclipsed the 2014 previous record high by 500 million pounds.

The novel coronavirus pandemic has forced shoppers online and led to the stockpiling of essential goods in large warehouses, as investors seek to transfer cash from struggling office properties and retail centers.

Blackstone's 473 million pound purchase of a logistics platform from another US business, the world's largest warehouse company, Prologis, in October, was the biggest deal of the year, according to the Financial Times.

Savills highlighted that companies last year signed leases on 50 million square feet (5.3 million square meters) of warehouse space, surpassing the previous record of 37 million square feet, which pushed the vacancy rate down to 5.7 percent.

The UK's logistics sector now supports 2.6 million jobs "and that number is rising", according to the Sunday Times, noting that fast-fashion giants Asos and Boohoo this month announced plans for warehouses that will create 3,000 jobs.

It added that the proportion of retail sales made online has almost doubled to 36 percent during the pandemic and that "nobody expects it to sink back to the previous level once all shops reopen".

Nick Preston, fund manager at Tritax, which invests in European logistics real estate, told the Financial Times that "virtually every investor" was looking at the sector in 2020.

"It's the biggest herd of wildebeests you've ever seen: far-eastern investors, European institutions (and) private equity players wanting exposure to the sector."

The Sunday Times noted that after investing in the sector for two decades, Prologis is now worth $71.2 billion, and that Blackstone sold its European portfolio Logicor for 11 billion pounds to the China Investment Corporation in 2017.

James Seppala, Blackstone's head of European real estate, told the paper that the company is "continuing to invest actively in logistics across Europe, including in the UK".

He said: "We expect continued growth in demand because of changing consumer habits, which are a very powerful tailwind."

Online retail giant Amazon signed leases on a series of multimillion-square foot facilities around England last year, including 65 million pounds for land designated for housebuilders in northwest London.

The Sunday Times noted how this acquisition revealed the intense competition between warehouse operators and housebuilders for land on the edge of cities.

It reported that investors are searching for opportunities to repurpose other spaces, noting that last month, the City of London Corporation "agreed to allow Amazon to convert part of an underused car park into a mini delivery hub".

David Sleath, chief executive of Segro, a FTSE 100 company, suggested flats could soon be built "on top of warehouses" to satisfy demand for housing. He said facilities might even be "constructed underground".