E-commerce growth boosts demand for logistics: UOB Kay Hian

FLCT focuses its expansion on the Asia Pacific and Europe, with a portfolio comprising 103 properties at $6.3b.

Growth of e-commerce creates more demand for logistics space, UOB Kay Hian said, noting that Frasers Logistics & Commercial Trust (FLCT), a Singapore Stock Exchange-listed firm, is investing in expansion in logistics and business park properties.

“Online retailers are heavy-duty users of logistics space. Online retail sales are supported by 3x the logistics space required for brick-and-mortar retail sales,” UOB KayHian said in a note.

It said the US-China trade conflict and the pandemic disrupted and exposed the vulnerabilities of lean just-in-time supply chains, but estimated that the transition from “just-in-time” to “just-in-case” supply chains would increase inventories by 5% to 10%.

UOB said that structural changes drive demand for logistics space with the increasing online retail sales for Australia which jumped 3.3 percentage points to 12.6% in 2020, according to CBRE. It is currently at 13.3% and is “continuing on an upward trajectory.”

Australia’s e-commerce entry is low relative to other countries such as the United Kingdom at 19% and the United States at 14% “but has been catching up.”

“The entry of e-commerce giant Amazon in 2017 contributed significantly to online retail sales in Australia and drives the increased adoption of e-commerce. Amazon provides low prices, vast selection and fast delivery and is supported by 11 fulfilment centres across all major cities,” it said.

FLCT, meanwhile, invests in income-producing properties for logistics, commercial (CBD office space) or business par purposes.

It is focused on the Asia Pacific and Europe, with a portfolio comprising 103 properties at S$6.3b across Australia, Germany, Singapore, the Netherlands, and the UK.

“In the near term, management sees opportunities to create value of its CBD Commercial properties through active asset management to optimise rents and occupancy but is unlikely to hold on to them over the longer term. FLCT is likely to rebalance its asset class mix towards logistics and business park properties over the next 3-5 years,” it said.

 FLCT acquired three-hectare vacant land in Blythe Valley Park near Birmingham which it plans to develop into four units of logistics warehouses, whilst the Farnborough Business Park in Thames Valley has an office development site that is eyed to be redeveloped as a last-mile e-commerce fulfilment centre due to proximity to Farnborough Airport.