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Investment ideas for the new economy

The impact of COVID-19 has accelerated some key changes in Western economies, in work, leisure and shopping behaviour. In this article we look at one particular sector and discuss how advisers can take advantage of changes for their clients.

According to the Office for National Statistics (ONS), during March 2020 the share of retail purchased online reached an all-time in the UK of 22.3%1 , and according to the US Govt2 online sales reached almost 12%. In Europe as a whole the total share was 11.8% in 2019.

UK online sales ONS data

In value terms this means that monthly UK online sales are approaching the £2bn figure.

From an investment perspective the interesting point about this growth is that there is insufficient warehousing space available on mainland Europe to support the current growth. Savills3 estimate that 16,7 million m2 will be needed in the next 4 years.

In addition, there have been other changes accelerated by the COVID-19 crisis. Many manufacturers saw their offshore supply lines badly disrupted, and many businesses have found that they can operate surprisingly well with staff working on a remote rather than co-located basis. At their AGM of 29th April, the CEO of Barclays4 openly questioned how much office space they would need in future: “Having thousands of bank workers in big, expensive city offices "may be a thing of the past"

So some areas will be badly affected, the woes of the UK retail shops have been well documented, and now it seems that large offices estates also need to be wary. Finally, student housing is an area likely to be badly impacted in the UK, especially at those Universities such as Manchester that are heavily reliant on foreign students.

In contrast European and UK logistical development is seeing severe demand pressure. Manufacturers are bringing supply lines back onshore, and warehousing to supply internet-based purchase and delivery is expanding rapidly.

In the past year countries such as Poland (up 46%), Denmark (up 38%) and Finland (up 32%), have seen huge increases in the flow of external capital into their commercial space. According to a report by Savills, the US is the largest investor, followed by South Korea and Singapore.

For a UK small investor, this is a significant challenge. Many traditional UK property funds have large fixed holdings in the UK retail and office sectors. How do these smaller investors gain access to the rapidly growing logistics and development sectors in European or even the US markets when the majority of UK funds are focused on the domestic market?

To achieve this, the smaller investor would probably have to look at buying Investment Trusts or specific property shares, either as a traditional Investment Trust, or as a newer more focused Real Estate Investment Trust.

Alternatively, they could use one of a number of investable property indices that have been developed and that offer exposure to European and US markets, as well as fast growing sectors such as logistics. For example, one index that offers such exposure is the Solactive Target Real Estate Index, which is also available to UK retail investors through a tracking fund managed by Fortem Capital that is available on the Embark Platform.

Significant opportunities exist for investors in this new economy.

Read more articles on our insights page

About the author

Ronan has been a member of multi-asset investment committees since 2004, providing expert asset allocation expertise for thousands of investors. Ronan founded Indexx Markets (an independent index design firm) in 2011 and sold it in 2015 to AJ Bell Ltd. Ronan is responsible for monitoring the index and its constituent elements. He is a co-founder of Altium Investment Management, a specialist in investment indices and factor investing.



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