How to buy into the big box boom

Reports on the e-commerce boom are full of killer statistics. Britons are thought to have spent £5.7bn online over just the Black Friday weekend this year; online spending over the whole of 2021 is expected to total £185bn – that is 21% more than last year’s total of £153m.

But here’s a statistic you don’t hear quite so often. Every £1bn of additional ecommerce requires an extra 1.36 million square feet of warehousing space; all those goods have to be placed and sorted somewhere so that they’re ready for delivery. No wonder the UK’s logistics industry is booming.

It’s a reminder that in investment, the obvious way to back a strong trend may not be the only play. The value of online retail giants has soared in recent years – even more so amid the Covid-19 pandemic – but so too has the value of logistics industry providers, where demand continues to run ahead of supply.

Enter the investment companies sector. Investors looking for exposure to online retailers have plenty of options, from buying the shares of individual companies to investing in numerous funds that hold these businesses. But investing in warehousing space – even though you know it is in huge demand and short supply – is not so straightforward. Unless, that is, investment companies are on your radar.

Right now, there are no fewer than five investment companies that offer a way into this asset class: Aberdeen Standard European Logistics Income, Tritax Big Box, Tritax Eurobox, Urban Logistics REIT and Warehouse REIT. Each is a variation on the theme, but the principle is the same. These funds are a way to invest in the warehousing and logistics sector, offering a return comprising both income and growth – often with an emphasis on the former, which is especially valuable in the current low interest-rate environment.

Owning a warehouse is different to owning a share in a company. Yes, it generates an income, as retailers rent space, and yes, it may increase in value over time. But buying and selling the asset, a commercial property, is much more complex and time-consuming. It’s an illiquid investment, in contrast to shares, which can be bought and sold on a stock exchange within seconds at the touch of a button.

Investment companies are uniquely well-suited to this type of illiquid asset. With other structures, the size of the fund increases or decreases as investors put more money in or take it out. This can cause real problems for funds that invest in illiquid assets: the manager may have to sell assets in a hurry in order to pay investors leaving the fund, or cope with a large pool of cash that has to be invested quickly if investors are arriving in large numbers. Investment companies, however, are closed-ended funds; investors get in and out by buying and selling shares on the open market, with no impact on the underlying portfolio of investments. The manager never has to worry about illiquidity.