With offices, hospitality and retail all on the slide, industrial property looks set to become the best bet in global real estate.
While much of the global property market is in a bear market spiral, the pandemic has been a dramatic money-making opportunity in the shares of industrial property landlords. I recommended the shares of Prologis (PLD), the New York-listed logistics REIT, at $60 on 15 April 2018; Prologis closed on 14 August 2020 at $102 – a 70% profit in the past 28 months. The company is now the world’s largest owner of logistics and industrial assets, the most attractive segment of the global property markets. This is the safe haven sector for sovereign wealth funds, pension funds and life insurance companies, which need to invest for decades and crave long-term value, stellar tenant credit risk and rising rental yields.
Prologis is a classic beneficiary of the dramatic rise in demand for warehouse space since online sales have risen from 6% of retail sales a decade ago to 30% at the height of the global pandemic lockdowns. Is this trend overdone? Absolutely not. Amazon, Prologis’s largest tenant, intends to lease 35m sq. ft of new warehousing space in the US alone in 2020. Property economists estimate that every $1bn in online/e-commerce sales translates into demand for 1.2m sq. ft of logistics space. With rents expected to rise by 6% in 2021 as Amazon and its peers opt for colossal high-tech fulfilment centres on the outskirts of the world’s major cities, there is no doubt that Prologis’s competitive advantage as the planet’s pre-eminent industrial landlord will only increase.