Today’s motorway drivers can’t go far without glimpsing huge, sleek logistics warehouses en route. These box-like buildings are where retailers, manufacturers, and e-commerce companies store goods that are going to be delivered to retail outlets or assembly plants - or to consumers at home.

A story of growth

The sector has also become more appealing to investors. Demand for logistics space has grown in recent years, thanks to the expansion of e-commerce and global trade. The trend for ‘nearshoring’ has also provided a boost along with supply chain modernisation. The story of the sector is one of growth, with the global logistics market size accounting for $8.96 trillion in 2023 and expected to be worth around $21.91 trillion by 2033[1].

The right space

Today’s consumers want their goods delivered quickly. And they want to be able to make returns where necessary.

Meanwhile, as margins thin amid rising costs, e-commerce companies and mainstream manufacturers want modern, efficiently functioning buildings with the right sustainability characteristics.

Supply and demand

The supply of logistics space has been slow to catch up with growing demand, and the recent modest increase in vacancy rates looks set to be only temporary. Demand has already rebounded above the long-term average this year and new construction activity is falling sharply. Originally slower-paced compared to the US and UK, rents in the European logistics market are now among the fastest growing, and the region offers attractive opportunities for logistics real estate investors.

Longer leases

Due to the high cost of modern logistics systems and automation, tenants are happy to commit themselves to their buildings for a long time through lengthier leases. 

This makes the sector particularly attractive for investors seeking long-term, reliable income. Leases are often inflation-linked too – especially in Europe.

Cholet, France

As managers of abrdn Global Real Estate Fund, we favour logistics assets with best-in-class facilities in strong locations. One of our latest acquisitions is a new-build logistics asset in Cholet, France. This high-spec 20,707 square metre logistics building is located within the Atlantic corridor market, servicing 17 million inhabitants. The region is important economically, driven by tourism, agriculture and fishing, and has become a critical hub of innovation in food security.

Strategic gateway

The Atlantic corridor has been one of the most dynamic regions for logistics, with a vacancy rate close to zero. The Nantes area is a strategic gateway between the West of France, Paris and the rest of the country. It’s one of the few multimodal hubs in Europe, accessible by sea, river, motorways, highspeed rail infrastructures and an international airport.

Importantly for investors in the fund, the asset offers attractive long-term income prospects. The building is pre-let on an inflation-linked basis for nine years to transport and logistics company Le Roy Logistique. A leader in the sector, Le Roy offers tailor-made logistics solutions and has been operating since 1947.

Flexible

The brand new 30,000 pallet-capacity base is part of Le Roy’s strategy of boosting proximity to customers' consumption areas, business parks and industrial sites, to improve efficiency, save costs and reduce carbon emissions. The company is aiming to serve agri-food, industrial, cosmetics and textiles markets from this state-of-the art logistics location, its latest in the Pays de la Loire region[2].

With three storage cells, office facilities, and six lorry parking units, the asset has the potential to be divided for any future tenants. Size, specifications, strategic location and flexibility are not the only factors that make Cholet attractive to tenants and future buyers alike. The asset will be certified as Very Good by BREEAM[3], in terms of its environmental performance, once the installation of roof solar panels is complete.

Inflation-linked cashflow

As abrdn Global Real Estate Fund’s first direct French purchase, the Cholet asset adds diversification to the portfolio and secures valuable inflation-linked cashflow via a highly liquid asset. The deal also boosts the fund’s weighting to Industrials and Logistics, making this the largest sector exposure in the fund. This weighting aligns well with our in-house research outlook for real estate investment returns.

You can find out more about abrdn Global Real Estate Fund here, or by contacting your abrdn representative.

Companies are selected for illustrative purposes only to demonstrate the investment management style described herein and not as an investment recommendation or indication of future performance. Past performance is not a guide to future results. 

*Credit for this riddle goes to Le Roy Logistique, LinkedIn, March 2024