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The City of London may be a ghost town at the moment, and many office blocks around the UK may be deserted as much of the population works from home, but one sub-sector of the commercial property market has been seeing a different story entirely. Investors may be concerned that many leading commercial property investment funds have suspended redemptions, but the warehouse market is looking buoyant right now and so are the investment trusts that invest in it.

January saw 19% of all retail sales conducted online. By March this was more than 30% in comparison to research which predicted it would be 25% by the end of 2022. This progression looks here to stay, but perhaps at a more modest level. Groceries, which still comprise 10-12% of online volume, have a long way to go, and it is difficult for retailers to maintain margin.


We’ve seen some very solid return numbers from REITs (real estate investment trusts) that invest in warehouse property specifically. The Tritax Big Box REIT (LSE:BOXT) has been doing extremely well. It is up 8.6% over one year, but more spectacularly, has put on 41.4% since the start of April. Another big winner has been the Warehouse REIT (LSE:WHRW), which says what it does on the tin, and is managed by Tilstone Partners.

“The online shift is here to stay,” says Andrew Bird, Managing Director with Tilstone Partners. “The number of customers using internet shopping has increased, the amount each one spends has increased, and this convenience has proved a saviour for so many. Combined with a likelihood of many people working from home part of the week, and therefore perhaps having less opportunity to visit the high street during lunchtime, our national commitment to online buying is here to stay and probably accounts for 60% of market share.”

UK online penetration peaked at 33.5% in May, reflecting the shift in consumer behaviour as non-essential physical stores were closed. From June through August this online penetration level has moderated and now stands at 28.1%. This change is a reflection of consumers starting to regain confidence and return to shopping in physical stores, rather than a sharp slowdown in online sales.

Online spending continues to be robust in the UK, with year-on-year sales growth remaining above 50% despite more people shopping at physical locations.

Another REIT worth looking at is the Aberdeen Standard European Logistics Income fund (LSE:ASLI), which has made 20.3% in six months. The sector average for European property trusts tracked by the Association of Investment Companies is 11% over the same period.

“As in the UK, the demand for modern logistics space is closely correlated to the growth in e-commerce which, in turn, has a direct correlation to demand,” explains Nick Preston, the fund manager of the Tritax EuroBox REIT (LSE:EBOX). “This surge in e-commerce adoption has further driven the demand for assets located within close proximity to dense population centres and infrastructure. In particular, it has resulted in strong demand for mega boxes (40,000 square metres plus), which provide affordable, flexible and efficient space, where occupiers capitalise on the cubic space, not just the floor area. Efficiency gains are driven by the economies of scale that are achieved, as well as the fact that these larger assets can accommodate the increasingly important automation.”

Warehouse occupier demand remains robust

The occupier demand for warehouse space has remained robust across all sub-markets and unit sizes. All online focused businesses have been the winners as have those logistics companies that serve the sector. The annual take-up statistics for many commercial warehouses for 2020 are anticipated to exceed those of last year, albeit Amazon has again become a materially significant contributor.

While some warehouses were temporarily closed at the height of the first wave of the pandemic, many fund manager now report that the vast bulk of their properties are up and running at almost full capacity again. This is unlikely to change. Managers of REITS with heavy warehouse exposure have some explaining to do if they can’t make money in a market with such a boom in online demand.

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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Stuart Fieldhouse

Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.

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