Amazon Is A $12B Machine Creating Product For The Real Estate Investment Market
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As a shopper, it can be hard to remember what the world was like before Amazon came along. The same is pretty much true if you are a real estate investor.
Korean investors IGIS and Korean Investment & Securities completed an equity raising earlier this month to buy three warehouses leased to Amazon for around £400M, according to React News.
When this deal completes later this year, around $12B of assets where Amazon is the occupier will have been traded globally in the last decade, according to data compiled for Bisnow by Real Capital Analytics. That is more than any other single occupier.
Amazon is not just a driver of change in retail and e-commerce. It is a machine that has manufactured product for the real estate investment market, and changed the logistics investment sector from a domestic or regional industry to a global one. And given the company still has room for expansion, this is a trend that is only likely to continue.
“Before Amazon came along, logistics investment was a bit of a backwater in commercial property investment,” Savills Research Director Kevin Mofid said. “Average volumes in the UK were less than £1B and prime yields were between 5.5% and 6.5%. Today volumes are double that and yields are about 4-4.25%.”
That rise in yields equates to an uplift in values of between 25% and 35%.
Amazon’s biggest impact was to give the logistics sector a major global occupier for the first time; in the same way that global investors in offices could recognise and take comfort in the covenant of a global occupier like Deloitte or Citibank, they knew and understood Amazon. This was particularly useful at a time when capital was becoming ever more global.
“From an investment perspective, logistics is now a mature global asset class,” Mofid said. “Amazon is a globally recognised brand. Investors are increasingly comfortable with it, know it from their own jurisdictions and cities. That makes deals with it more attractive and gives people that fuzzy, comforting feeling that comes from investing in a global brand.”
Mofid points out that every type of investor loves a deal with Amazon: from domestic players like pension funds and REITs to private equity firms building up regional portfolios (like Blackstone has done with Indcor in the U.S. or Logicor in Europe) to global investors like IGIS and KIS investing outside of their home territory.
The largest-ever deal for an individual logistics asset in the UK was undertaken by a Korean client of BNP Paribas Real Estate, which bought a 1.1M SF unit leased to Amazon in Leicestershire for £126M from Mountpark in 2016.
According to RCA, $1.8B of assets where Amazon is a tenant have been completed in the last decade in the UK, and $6.5B in the U.S. The figures include some multi-let assets where Amazon is one of the occupiers.
The three warehouses being bought by IGIS and KIS are in Bristol in the UK, Paris and Barcelona, React News said. The portfolio totals 5M SF and the buildings are all multi-storey assets, making them among the most advanced that Amazon occupies. Amazon itself is the vendor.
Happily for real estate investors, the Amazon machine is set to keep churning out product for them to buy as its global expansion continues. The U.S. and UK are two of its three most mature markets globally, but in the UK it still took a huge 6.9M SF in 2018, or 19% of all the logistics space occupied in the UK. That is slightly down from 2016, when it took 21% of all UK warehouse space, but a large increase on the 2007-2014 period, when it averaged just 2% of all UK takeup.
And there are more worlds for Amazon to conquer. Germany is its second-biggest market, but its share of retail sales in markets like France, Spain and Italy remains low, with plenty of room for growth still. And it only launched in Australia in 2018. It will need plenty more space yet, good news for the investors that have come to love its covenant when they put money into the market.