One of the interesting things about property (or maybe even one of the infuriating things) is the way in which opportunities change, emerge and decline as the years pass. No one could argue that we aren’t in interesting times for the property market at the moment.
Residential property as an investment opportunity probably only began in earnest in the 1980s, and boomed throughout the 1990s and 2000s.
Retail property has been considered something of a golden goose for a century or more. Not too long ago it looked like a type of property investment that could never, ever fail.
One type of property investment to come to the fore more recently, however, has been that in warehousing.
While warehousing has been around for a long time it has long been seen as the ‘ugly sister’ of the property industry.
The rise in online retailing, partly but not exclusively due to Covid, has been a significant factor in the growth of warehousing. Online retail grew by 36% in 2020 according to the IMRG Capgemini Online Retail Index. And online retailers alongside those who supply them are highly dependent on warehousing .... and lots of it.
So not only has warehousing re-emerged as an asset class of late it now has an added, almost exciting, new dimension to it too. While previously considered to be something of a bargain basement and modestly yielding investment it’s looking likely that it won’t stay that way for too much longer.
Here are just a few interesting recent forecasts to consider:
Investment in UK warehouses reached £4.7 billion in 2020, according to Savills’ Big Shed Briefing. This was 25% up on the previous year, and £500 million more than the previous record high.
According to consultants CBRE every extra $1 billion (£0.72 billion) spent online generates a demand for an extra 1.25 million sq. ft. of warehousing space.
According to research by Beroe the global warehousing market was worth $245 billion (£177 billion) in 2020. They forecast it will grow 7% annually and be worth $326 (£235 billion) by the end of 2024.
So what are the ways in which investors and others involved in property might benefit from the warehousing boom?
Design and build.
Land sourcing and acquisition. Land suitable for warehousing development is becoming increasingly sought after and will become increasingly scarce. Large warehousing schemes need very large plots of land, land with the appropriate planning status or ability to gain it, and good transport connections.
Repurposing redundant commercial space. Much is being said at the moment about how redundant and so cheap to buy retail space could be repurposed for more desirable warehousing use.
In fact, there is likely a direct relationship between the ongoing decline in retail and the rise in warehousing: The less physical retail space retailers occupy the more warehousing space is likely to be needed.
In the USA, Amazon is reported to be buying up redundant shopping malls to convert into fulfilment centres.
The main challenge for smaller investors of course is that investing in warehousing is not quite so straightforward as, say, investing in a residential buy to let.
It’s not entirely impossible for better resourced private investors to invest directly into warehousing, however. It also offers some attractions. Borrowing to invest in commercial property isn’t impacted by restrictions on mortgage interest tax relief as residential property now is. Also, unlike residential properties, commercial properties are investable via SIPP or SSAS pensions.
Not all warehouses are what are often called ‘mega sheds’ of hundreds of thousands of square feet. What are known as ‘last mile’ warehouses are smaller and by no means out of reach of all private investors.
The main ways in which small investors can invest in warehousing, however, is probably through some kind of investment fund or REIT. Or investing directly in the shares of developers, construction companies or relevant commercial landlords. It’s not unlikely that these will receive more attention from small investors who would have at one time invested directly into buy to lets too.
According to one report as recently as 2018, investing in warehousing ranks very favourably compared to investing in online retail itself.
In future there may even be new products that make it possible for smaller investors to participate in the warehousing boom. For example, crowdfunding and peer to peer lending into warehouse space is already available in some countries.
One last thing to consider when it comes to the rise of warehousing is the impact it might have on other areas of property. If, for example, investors directly or indirectly move out of residential and other investments. Or if more land is allocated to or developed by warehousing instead of residential or other types of commercial development. These are also things that everyone involved in property will want to keep an eye on.