Last mile moves for alternative sites

Finance and Investment Summit: Less low-hanging fruit means logistics and last-mile operators are looking at retail and residential cast-offs for new development opportunities. “The nuggets are very difficult to uncover nowadays,” said Gordon Reynolds, international partner for logistics and industrial at Cushman & Wakefield “But there are potential alternative opportunities out there. The retail sector is challenged, retail warehouses are not performing as well as they used to and industrial rents are beginning to rise. “I think there might be a parity there.” Reynolds said the Homebase portfolio was attracting a lot of attention, while the Toys R Us sites they were working on was drawing the eye of industrial operators too. Reynolds was speaking at the EG Finance and Investment Summit on a panel looking into the last-mile and distribution hub gold rush, and whether there was still room for new investors. The demand from e-retailers for distribution hubs has pushed up returns in the sector, but this has made traditional, secondary industrial asset management opportunities hard to come by. However, Reynolds cautioned against a flood of deals for out-of-town retail parks. “I don’t think you will see a flurry. It’s very challenging to break a park,” he said. Opportunity knocks Richard Bains, managing director at Chancerygate, said the slowing residential market was also providing an opportunity. He said owners of sites that the company was out-bid on 12 months ago by residential developers were now “coming back with their tails between their legs.” Alex Woodall, UK divisional director at M7 Real Estate, said a site it had recently sold near Plymouth was an example of a previous investor holding out for a change to a different use class, which had not worked. “[But] They are fewer and farther between,” he said. “A lot of the estates like this, they have been done.” Growth Bains said rather than searching for asset management opportunities, the growth in logistics was supporting knocking down assets. “There is probably more value to be made by knocking them down and creating a better model industrial space… We have seen better rental growth across grade A rather than secondary.” Woodall, however, said there is still room for growth in secondary asset rents which, in turn, can support development. Personally, I think there’s a long way to go,” he said. “There has not really been any real rental growth across the UK with the exception of London and the South East for 25-30 years.” To send feedback, e-mail alex.peace@egi.co.uk or tweet @egalexpeace or @estatesgazette