Inside A Retail Specialist’s Move Into Urban Logistics
Urban logistics is possibly the hottest sector in property right now, with rents and values growing rapidly. You know you want to invest in it. But how to do it in practice and make a success of it?
Meyer Bergman has made its name as a retail specialist, but last month it announced it was to move outside of the sector for the first time and invest in last-mile logistics. It is planning to allocate €150M of equity a year to the strategy, which will mean €300M of annual acquisitions once debt is included. That will equate to around a quarter of its future investments.
What the firm does and how it does it is worth watching. It has struck some innovative deals in recent years, including forward funding the retail element of a development which will see a new chunk of Monaco being built out into the sea.
Chief executive Markus Meijer talked Bisnow through the firm’s decision to invest in logistics: the where, how and why. It is about the future of how cities work; about e-commerce growth of course, but also urban farming and 3D printing.
“Because we are a fund manager we have to be careful not to make any sudden decisions, and we have to do this in a thoughtful way,” Meijer said, explaining the thought process that led to the expansion of the firm’s strategy.
“[The entry into logistics] is something we probably started to see coming over the last couple of years, particularly as online retail has started to eat into the profits of brick-and-mortar retail, and the supply chain of every area of business has been affected. There is a pretty significant imbalance between supply and demand in urban logistics and we can see that remaining for the next 10 years or more.”
Meyer Bergman hired Marco Riva from Logicor, the €13B European logistics giant built up by Blackstone and sold to the China Investment Corp. last year, to run both its Southern European investment business and last-mile logistics investments for the whole of Europe. He was head of acquisitions for Logicor, having been seconded into the business from Blackstone. It is also hiring further professionals to invest in the sector.
The company will invest some of the remaining capital from its third fund, which is close to being fully invested, in urban logistics and then more from its upcoming fourth fund.
It will initially target Italy, Spain, France, Germany and the Benelux countries, with the U.K. not a priority for now because the market is more mature and therefore expensive.
It has struck its first deal, buying a portfolio of nine properties totalling 484K SF in the Greater Milan region in Italy. It is essentially a forward funding deal, with the properties under construction and Meyer Bergman buying them once they are completed and leased. It will look to undertake other portfolio deals but is also building a team to invest in the sector on the understanding that it comprises small assets that often need to be bought individually, a strategy that takes a lot of work and human resources.
Meijer said that while the company’s background as a retail specialist might come in handy, it is not crucial, given that a significant proportion of urban logistics assets are leased to specialist logistics companies rather than the retailers themselves. And the growth of the sector is not purely down to the growth of e-commerce, although this of course plays a part.
“You are buying irreplaceable properties close to city centres and that feels like a good starting point. These are places where there is little available space for this use and not much more is being built because a lot of the land is going to residential,” Meijer said.
He said demand for this type of property is being driven by lots of different industries all looking to make efficiencies in the logistics side of their business, and there are new streams of demand opening up.
“Then there are all kinds of startup and new industries — the cloud kitchen company that Travis Kalanick has started, or farming startups that are changing the way food is produced and supplied. They can produce higher yields and because they are indoors do not need pesticides. These are all things at early stages but we see them as future drivers of demand.”
Meijer is seeing the blurring of retail and last-mile logistics in the potential to repurpose retail parks for logistics use. There have been few examples of this happening in practice yet, but Meijer feels the economics are getting there.
“We are looking at opportunities where we can use our contacts and expertise to buy out-of-town retail boxes and repurpose them,” he said. “You have a situation where retail rents are falling and logistics rents are rising, so there may soon be opportunities to change the use of some of these properties. The other options are suburban offices or residential. The second option is more difficult because there are height restrictions and planning issues. But for logistics you maybe just need to reconfigure the loading bays.”
It is far from a quick pivot, but that is OK, because for Meyer Bergman, the opportunity in last-mile logistics is not going away soon.