Investors bet on retail warehouses as last mile delivery hubs

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Investors are snapping up retail warehouses with the intention of reclassifying them as last mile delivery hubs as demand for urban logistics space soars.

While many retail warehouses and out-of-town retail park schemes remain financially viable, many investors are hedging their bets as these properties  are also  much in demand as last mile delivery hubs due to their locations in densely populated urban areas.

Pan-European investor and asset manager M7 Real Estate, has assembled a £300 million plus portfolio of 19 retail warehouses following the full deployment of capital raised across its M7 Box+ I and M7 Box+ II funds.

David Ebbrell, CEO at M7 said: “We believe that retail warehouses are one of the most interesting UK real estate asset classes at the moment, especially given the current pricing dislocation in this segment as the rental arbitrage between last mile logistics and retail warehousing narrows.

“Despite perceptions, occupier demand for well-located space with deep residential catchments remains robust seeing over 700 new store openings in 2020.  Retail warehouses will play an important role as part of the omni-channel retail landscape, especially for click and collect, last mile logistics and retailer returns, given their convenient locations in urban areas where space is extremely constrained.  We are of the view that demand is only set to grow. The portfolio we have managed to assemble over a relatively short timeframe holds significant opportunity and by deploying our asset management skills we believe that we will deliver attractive income and capital appreciation for our investors.”

Both funds, which were launched in the second half of  2020, focus on carefully selected UK retail warehouses with potential for future rental and capital growth, through asset management and an anticipated re-pricing of the asset class as the logistics function of these properties in the last mile delivery chain grows.

M7 Box+ I comprises 10 assets with a total area of 413,500 sq ft, while M7 Box+ II, the larger of the two funds, has nine assets with a total area of circa 1 million sq ft. The portfolios are spread across the UK, providing income and value diversification by both tenant and geography, although Box+ II has a bias towards the South East where the supply / demand pressures are more acute due to land availability.

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