Driving distribution assets

 

Distribution warehouses have long been in favour by Islamic investors as a real estate investment, but competition to buy remains intense and as a result yields can be low, encouraging many to consider new countries to achieve the returns they desire.

The most recent significant acquisition announcement was from Bahrain’s Investcorp, with a US$170 million portfolio that sounds very attractive. The eight properties are fully let, with an average lease length of 15 years. Located in Phoenix, Arizona in the west to Jacksonville, Florida in the east, the range of locations is reflective of the breadth of impact from the rapid growth of e-commerce.

While e-commerce is obviously not directly delivered from each and every distribution warehouse, it is the demand that this revolution is creating and, with typically limited supply, the rental growth being driven across the warehouse market that are leading to frequently a buying frenzy.

Our own 90 North came close to also buying in Jacksonville, Florida a few years ago … wish we had pushed the purchase price a bit more now! So, our experience has been within the UK and Continental Europe. Ranging from cosmetics in the UK, through electrical components in Norway to car parts in Germany, all had the common theme of material value increases as the wave of investor interest carried itself across Europe.

It is this wave of investor demand that Deloitt e highlighted in a fascinating presentation that recently came across my desk. They split Europe into three bands, with the UK, most of the Netherlands and the Nordics in the highest capital value band; France, Germany and Poland in a middle band and a suggestion that the ‘Mediterranean corridor’ (as they put it) could be next, encompassing Portugal, Spain, Italy and the southeast European countries.

As I have shared before, I have always found Islamic investors who already have an international perspective on real estate investment to be the most receptive to considering new locations on their
merits. The growth of e-commerce is spreading far and wide, but at least for the moment there are countries at the earlier stage of this cycle that could be worth considering.

This article was first published in Islamic Finance news dated 8th May 2019.