December 27, 2018 / 10:58 AM / 6 months ago

Breakingviews - Investors will swap City offices for Euro sheds

The Amazon warehouse in San Fernando de Henares is seen on the outskirts of Madrid, Spain, July 17, 2018.

LONDON (Reuters Breakingviews) - European property investors face a problem in 2019. Valuations of familiar sectors like offices and shopping centres are high, considering that the UK’s assumed departure from the European Union in March could create chaos. Luckily for them, there’s a workaround. Given they stand in the line of fire, UK property prices aren’t exactly cheap. Retail and office rental yields are lower than their 10-year averages, as they are in Europe, according to data from CBRE and Savills. So are UK “sheds”, or warehouses rented out by companies. European rental yields on industrial properties, however, are 7.3 percent, hovering around the 10-year average, Savills says. They offer a 3 percentage point premium to retail and office space on the continent and 2 percentage points to UK sheds. Property mavens have noticed this represents a bargain. Over the past decade online sales have increased 2.5 times in Europe and are set to grow an average of nearly 12 percent annually over the next five years, according to Forrester Analytics. That could mean high street insolvencies – bad for retail. But it could be good for sheds. Amazon has plans to hire 18,000 new staff on the continent, and many are likely to be manning warehouses. UK grocery retailer Ocado is also making a push into Europe in partnership with French grocery chain Casino, and plans a robotic warehouse outside Paris. Traditional shops will have to ramp up their same-day delivery services in turn. Unglamorous sheds could even start to mimic glitzy London property. Warehouse space in cities like Paris and Berlin is increasingly hard to come by due to planning restrictions, which could push up prices. Investors like Tritax EuroBox and Standard Life Aberdeen have already raised a combined total of 500 million pounds this year to plough into logistics. In a world where 10-year German bunds are offering under 40 basis points, warehouses will drive others to click and collect.

- This is a Breakingviews prediction for 2019. To see more of our predictions, click reut.rs/2R6H5pG

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