AMZN Amazon.com Inc

By Art Patnaude 

The warehouse property market in Europe just wouldn't be the same without Amazon.com Inc.

Amazon has become a major force in a logistics real-estate sector that is being reshaped by online shopping, investors and property brokers said. In the U.K. alone, the U.S. online retail giant accounted for nearly a quarter of all warehouse property space leased last year, according to property broker Savills.

Once a dull corner of the commercial real-estate sector, warehouses have become vital for businesses offering same-day deliveries. E-commerce requires efficient networks linking massive distribution centers to smaller properties in towns and cities, a system often likened to a wheel with spokes.

Demand for space hit a record last year in Europe's biggest markets. In all, 230 million square feet of logistics space was leased in the region, up from 205 million square feet in 2015, according to property broker CBRE.

As Amazon and other e-commerce companies pile into warehouses, investors increasingly are rushing to buy the properties. While overall commercial real-estate investment volumes fell in Europe last year, industrial and logistics volumes hit a record EUR25 billion ($27.24 billion), up from EUR23.3 billion in 2015, according to CBRE.

"E-commerce is forcing investors to look at logistics and warehousing completely differently," said Andrew Jones, chief executive at LondonMetric Property PLC, a U.K. real-estate investment trust.

In Europe, online retailing has taken hold most strongly in the U.K., where last year, internet purchases accounted for 15% of retail purchases, according to data firm GlobalData. Germany followed at 9%, the data show.

Amazon, which dominates online shopping around the world, accounted for 27% of all U.K. online sales last year, according to consumer-market research firm Euromonitor. In Germany, Amazon's market share was even wider, accounting for 40% of internet shopping sales, the data show.

Amazon leased 18 units last year in the U.K., 11% of the total number of units leased, according to Savills, but the 8 million square feet accounted for more than 23% of the total space leased.

The level "is largely unprecedented," said Kevin Mofid, a Savills research analyst.

In recent months, Amazon has said it would open several fulfillment centers across the region, including in France, Germany, Slovakia and Poland.

Amazon might not be as dominant in the U.K. this year after an exceptional 2016, brokers said, but it has continued to scoop up space. LondonMetric said last week that it had leased warehouse space to Amazon.

LondonMetric aims to increase its logistics property holdings to 80% from about 60%, with a particular focus on properties in urban areas, Mr. Jones said. The company last week raised GBP95.5 million ($120.3 million) through a share placing to fund such acquisitions.

Warehouses near cities are known as the "last mile" of a delivery network, which has become increasingly important to firms such as Amazon offering same-day services.

Blackstone Group LP, among the most active investors in European warehouses, has picked up on the trend. The U.S. private-equity firm said last week that it bought, alongside U.K.-based real estate group M7 Real Estate, a portfolio of last-mile warehouses in Germany and the Netherlands for EUR1.28 billion, according to Hansteen Holdings, the seller.

Blackstone also is selling its expansive European warehouse arm, Logicor. The private-equity firm is marketing the sale at EUR13 billion, while simultaneously working on an initial public offering. While the sale is Blackstone's preferred route, experts said, either path would result in one of the biggest real-estate transactions ever in Europe.

In one of the biggest European real estate deals last year, GIC Pte., Singapore's sovereign-wealth fund, bought warehouse-property group P3 Logistic Parks for EUR2.4 billion.

Strong investor demand has sent yields sharply lower. Average capitalization rate, a measure of yield, on European industrial properties was 6.4% in the fourth quarter last year, steadily falling from 7.8% three years earlier, according to Real Capital Analytics.

"E-commerce has changed our markets globally," said Jack Cox, head of industrial and logistics capital markets at property broker CBRE. "And it's only just starting."

Write to Art Patnaude at art.patnaude@wsj.com

(END) Dow Jones Newswires

March 28, 2017 07:14 ET (11:14 GMT)

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