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GLOBAL INVESTOR 2.07 Basics — 29<br />
side in the coming years should be higher than in Germany. Based<br />
on our expectations for stable-to-slightly-increasing rents and a<br />
further decrease in yields for warehouses, we see further potential<br />
for investments in Germany, Italy and France. In France, we favor<br />
the long-established Ile de France region and the Alsace, the latter<br />
mainly due to its favorable location and a relatively low cost structure<br />
(labor). Northern Italy is also likely to profit from the eastward<br />
expansion, thanks to intensifying trade flows from Eastern to South<br />
West Europe (Southern France, Spain) and vice versa.<br />
Potential for warehouse development in Eastern Europe<br />
The Eastern European markets are still immature and characterized<br />
by a low supply of modern logistics facilities. But we expect the<br />
strong economic momentum in Central and Eastern Europe (CEE)<br />
to lead to stronger demand dynamics and convergence with the<br />
rest of Europe. As Figure 3 on page 28 shows, warehouse purchasing<br />
yields in Prague, Warsaw and Budapest are already at the<br />
level of German cities. Yields in Bulgaria and Romania are still<br />
higher and are trading with only a small premium to the office sector.<br />
Due to low warehouse stock and strong expected demand<br />
growth, we would recommend investors to focus on warehouse<br />
development projects in Eastern Europe.<br />
Table 1<br />
Investing in the logistics theme<br />
Logistics services, executers and warehousing real estate companies<br />
are benefiting from the <strong>global</strong>ization trend and offer strong long-term<br />
growth. Source: Bloomberg, Credit Suisse<br />
Bank Rating Investment thesis<br />
Panalpina<br />
(PWTN SW)<br />
Kuehne + Nagel<br />
(KNIN SW)<br />
Deutsche Post<br />
(DPW GR)<br />
A.P. Møller-Maersk<br />
(MAERSKB DC)<br />
Prologis<br />
(PLD US)<br />
BUY<br />
HOLD<br />
BUY<br />
HOLD<br />
BUY<br />
Offers the most appealing business<br />
strategy in the freight forwarding industry,<br />
with its asset-light company structure.<br />
Aiming for a more fully integrated business<br />
structure and adding fixed assets to its<br />
existing business portfolio.<br />
Already offers the full range of services,<br />
from brokerage to transportation and<br />
express delivery.<br />
A pure executer focusing on sea freight<br />
service.<br />
One of the leading <strong>global</strong> providers of<br />
warehousing properties with large<br />
development projects in under-equipped<br />
emerging markets, such as China and<br />
Eastern Europe.<br />
The above recommendations represent our mid- to longer-term investment view at the<br />
time of writing and are subject to change depending on market conditions. Please contact<br />
your relationship manager for regular updates on specific companies.<br />
Asia: China (Shanghai) has a strong growth outlook<br />
In China, we expect strong growth in the logistics market in the<br />
years ahead, since it is still underdeveloped relative to Chinese<br />
trade volume. Over 85% of warehousing facilities are concentrated<br />
on the coast and are mainly focused on export logistics rather than<br />
domestic retail logistics. While export logistics make up the largest<br />
part of the distribution network, we also expect retail distribution<br />
networks to expand around Shanghai, as incomes and retail sales<br />
are on a strong uptrend. We see the coastal areas as the most attractive,<br />
since high market fragmentation, high regulation, regional<br />
politics and border controls are still hindering the creation of an<br />
integrated national logistics network. Shanghai is the most developed<br />
market and is expected to grow further in the next few years,<br />
as it is favored by international operators and developers. Shanghai<br />
yields for logistics properties are trading between 8% and 9%. This<br />
still-high yield could be explained by the fact that investors are just<br />
starting to discover the potential of the warehouse market and until<br />
now have been focused on office and residential investments. However,<br />
the presence of international investors and developers is<br />
expect ed to increase, resulting in higher capital <strong>value</strong>s and lower<br />
yields. Due to the high demand dynamics, the logistics sector in<br />
Shanghai is also expected to find support in further rent growth.<br />
Investing in a growth market<br />
The outlook for <strong>global</strong> trade remains favorable in most regions, and<br />
logistics services should strongly benefit from this secular trend.<br />
The coordination and transportation complexity arising from <strong>global</strong>ization<br />
leads to further outsourcing, which in our view is unlikely<br />
to change soon, as producing companies tend to focus increasingly<br />
on their core businesses. Investors who want to gain exposure<br />
to the logistics theme can do so by investing in logistics services,<br />
executers or warehousing real estate companies. As all three<br />
subsegments are benefiting from the <strong>global</strong>ization trend, all look<br />
attractive and offer strong long-term growth. Warehousing is probably<br />
the most defensive way to gain exposure to the logistics theme,<br />
while executers will likely be the most volatile investments.
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