Will sheds retain value?

But recommendations around prospective value or growth typically obscure multiple angles with regard to investing. High demand from investors supports values, which is good for existing asset owners, but a big question remains about future deployment of capital into the sector.

Will the sector be as rewarding in the long term as some anticipate, or match the premium it has yielded in the recent past? In our view, the sector still offers compelling risk and return characteristics.

Where’s the rent?

Strong occupier demand continues to buoy UK rental levels, but quality of space is key. Statements around supply volumes need to be considered against supply quality.

Contemporary logistics businesses place an increasingly high requirement on the type of space they need. Typically, the demands relate to floor loading, eave heights, vehicle circulation space and flexibility with regard to loading docks and so on. Ultimately, this means that much of the existing stock is not really optimal. This in turn compresses demand into the most suitable buildings, which strongly implies ongoing rental growth for the right, but not all, buildings.

Is the UK logistics market too expensive?

As ever, the answer depends on perspective. With regard to rent affordability, the sophistication of modern supply chains means calculations will be different. For example, the volume of movement of stored goods may now be a more important consideration for occupiers than storage capacity.

The determining factor must be the ultimate nature of the logistics occupier: is the business simply focused on storage, or is it more about movement of high-value product for last-mile fulfilment? There are considerable differences between last-mile logistics and long-leased large ‘boxes’. The former relates to growth underpinned by surging demand and fundamental land shortages; the latter is more determined by the underlying lease and covenant and, most likely, will see more constrained, but still positive, rental growth.

Is logistics a one-way investment success?

Most likely, yes, for the majority of buildings in the short term. But, broadly, we’re very mindful of the potential for these buildings to become obsolete in terms of physical characteristics and location. These factors are probably being understated by some investors eager to access the sector, but whose understanding of ongoing changes in the supply chain is limited.

As for wider considerations, there are the obvious challenges of Brexit and the inevitability of technological change such as the potential impact of semi-autonomous vehicles. We prefer to focus on the known fundamentals, such as the scarcity of good stock to support the market.

Ultimately, good logistics investments will be those where investors are confident that the underlying buildings or sites will retain a relevant role beyond the lease term.

Andrew Allen is global head of investment research, real estate, at Aberdeen Standard Investments