Logistics and Industrial REITs: Investing in the E-Commerce Property Boom

Logistics real estate — warehouses, distribution centres, last-mile delivery hubs, and light industrial facilities — has undergone a fundamental revaluation over the past decade. What was once considered a dull, low-growth corner of the property market has become one of the most sought-after real estate subsectors in the world. The structural drivers of this transformation — e-commerce penetration, supply chain resilience investment, and near-shoring manufacturing — are not cyclical. They represent permanent changes in how goods are stored, moved, and delivered.

The E-Commerce Structural Driver

Online retail in the UK now accounts for approximately 25–27% of total retail sales, compared with around 10% in 2015. Every percentage point shift from physical to online retail creates incremental demand for distribution space — online fulfilment requires roughly three times more warehouse space per £1 of sales than traditional retail distribution, because of the complexity of individual order picking, returns processing, and the need for localised stock held close to consumers.

This dynamic has driven vacancy rates in prime logistics space to historic lows. According to CBRE data, prime UK logistics vacancy fell below 2% in 2022, from approximately 6–8% a decade earlier. Even as speculative development pipelines ramped up in 2022–2024, vacancy remained well below the 5% level typically considered balanced.

Rental growth has been dramatic. Prime logistics rents in the major UK distribution markets — the Midlands Golden Triangle, Greater London, South-East England — have risen by approximately 35–40% since 2019, comfortably outpacing wider commercial property. In some London urban locations, last-mile rents have grown more sharply still as land scarcity constrains new supply.

Asset Types in the Logistics Sector

Mega distribution centres (DCs). These are the very large facilities — 500,000 sq ft to 1 million sq ft or more — typically built for a single occupier on a pre-let basis. Tenants include Amazon, DHL, Kuehne + Nagel, Ocado, and major grocery retailers. Leases run for 15–25 years on full repairing and insuring (FRI) terms.

Regional distribution centres (RDCs). Mid-size facilities of 100,000–400,000 sq ft serving a regional catchment. More multi-let, with shorter lease terms.

Last-mile and urban logistics. Smaller units of 10,000–50,000 sq ft, often infill sites in conurbations. These attract the highest rents per sq ft due to location scarcity but require more active management.

Light industrial and multi-let estates. Lower rents per sq ft but higher occupier diversity and shorter void risk on any single unit. SEGRO and Workspace Group both participate in this segment.

Cold storage. Specialist temperature-controlled warehousing for food, pharmaceutical, and biotech logistics. Higher capital cost, stickier tenants, and rents 50–100% above equivalent ambient space. Prologis and Lineage Logistics (the latter the world's largest temperature-controlled warehouse operator) dominate this globally; exposure for UK investors is primarily through diversified logistics funds.

Key UK Listed Logistics REITs

SEGRO (SGRO) is the UK's foremost industrial and logistics REIT and a member of the FTSE 100. It owns and manages approximately 10 million sq m of space across the UK and nine European markets, with a particular emphasis on urban warehousing and out-of-town logistics. SEGRO's development pipeline and capital recycling have enabled consistent net asset value growth over the past decade.

Tritax Big Box REIT (BBOX) focuses exclusively on mega-distribution centres let to blue-chip single occupiers. Its portfolio includes assets let to Amazon, Asda, Morrisons, and DHL. The long weighted average unexpired lease term (typically 14–18 years) gives predictable income but limited rental reversion in the short term. Tritax's sister vehicle Tritax EuroBox, which applied the same strategy in Continental Europe, was acquired by a Brookfield entity and delisted from the London Stock Exchange in December 2024.

Warehouse REIT (WHR) concentrates on last-mile and urban logistics, with properties clustered around major population centres. The shorter lease terms allow more frequent rent resets to market, providing rental growth capture. Distribution of income occurs quarterly.

LondonMetric Property (LMP) operates a diversified logistics and convenience retail portfolio with strong income metrics. It merged with LXi REIT in 2024, creating one of the UK's largest diversified income-focused REITs.

Urban Logistics REIT (SHED) is a smaller specialist focused on last-mile urban distribution.

Near-Shoring: The Supply Chain Resilience Tailwind

The disruption of global supply chains during and after the pandemic — semiconductor shortages, container shipping congestion, geopolitical risk from concentration in Chinese manufacturing — has prompted significant investment in supply chain resilience. Near-shoring and friend-shoring strategies, where manufacturing or distribution is moved geographically closer to end markets, generate demand for industrial space in Europe and North America that would previously have been served from Asia.

For UK logistics property, this means incremental occupier demand from manufacturers establishing or expanding European operations, from distributors holding larger safety stocks, and from companies investing in local assembly operations.

The US Inflation Reduction Act (2022) and the EU's Net Zero Industry Act have supercharged this trend in their respective markets, with significant investment in onshore battery gigafactories, semiconductor fabs, and clean energy manufacturing — all of which require industrial real estate.

Valuation Metrics for Logistics REITs

Net initial yield (NIY). The passing rent on the portfolio, net of costs, divided by property value. Prime logistics NIYs compressed from around 5–6% in 2015 to below 3.5% at peak in 2021–2022. Rising interest rates pushed them back to 4.5–5.5% by 2024 as values fell.

Estimated rental value (ERV). The market rent achievable on the portfolio, as assessed by external valuers. ERV growth has been running ahead of passing rent in prime markets, meaning most portfolios carry embedded rental reversion — future income growth as leases roll.

Reversionary yield. NIY on ERV rather than passing rent. A portfolio yielding 4% on passing rent but 5.5% on ERV has material embedded rent growth ahead.

WAULT (weighted average unexpired lease term). Longer WAULTs mean more income certainty but less near-term rental growth capture.

Development and Speculative Pipeline

The logistics REITs with development capabilities — SEGRO and Tritax in particular — generate additional returns by developing assets at cost and retaining the yield-on-cost premium. SEGRO's development programme has consistently delivered yields-on-cost of 6–8% in recent years, well above acquisition yields.

However, speculative development (building without a pre-let tenant) carries risk. If demand softens or rents fall, a developer can be left with a completed scheme yielding below hurdle rates. Monitoring the proportion of speculative vs pre-let development is important when assessing risk.

European Logistics Markets

The European logistics market has many parallels with the UK, with e-commerce penetration catching up across Germany, France, the Netherlands, Spain, and Poland. Prologis (NYSE: PLD) — the world's largest logistics real estate company — is the dominant player globally, with over 1 billion sq ft under management. It is not structured as a UK REIT but is accessible via US brokerage or UCITS ETFs.

UCITS ETFs providing logistics REIT exposure include the iShares Developed Markets Property Yield UCITS ETF and the Xtrackers FTSE Developed Europe Real Estate UCITS ETF, both of which carry logistics REIT weightings.

Risks

Over-supply. The development cycle has added significant new supply in some UK and European logistics markets, particularly the Midlands. Vacancy rates could normalise higher as supply catches demand.

E-commerce growth deceleration. Online retail growth slowed sharply in 2021–2022 as pandemic tailwinds faded. If penetration plateaus, the incremental demand driver weakens.

Occupier credit risk. Some high-growth e-commerce occupiers (not Amazon or large grocery retailers) carry credit risk. Lease defaults can create voids in otherwise well-located assets.

Interest rate sensitivity. As with all property, valuations and financing costs are affected by interest rates.

The value of investments can fall as well as rise. Past performance is not a reliable guide to future results. This guide is for information only and does not constitute investment advice.

How Global Investments Can Help

Logistics and industrial REITs have delivered some of the strongest risk-adjusted returns in listed property over the past decade. Our team can help you assess current valuations in the context of rate expectations, rental growth trajectories, and supply pipeline, and identify the vehicles that best match your income and growth requirements. Speak with one of our advisers to explore the sector further.