How to own land with an Amazon warehouse on it
- Credit: PA
Peter Sharkey on REIT investments and why he doesn't have a satnav
I've avoided having a satnav in the car, ostensibly because I'm a lover of maps, but perhaps most importantly because an over-reliance on technology can prove distracting and dangerous, as anyone who has seen a large, satnav-guided truck negotiating a completely unsuitable side-road would confirm.
I mention this after I attended a meeting on the western side of Manchester recently, close to where the M62 splits to become the M60 outer ring road heading north, branching again to the M61, while the M602 continues the eastward journey into the city.
As the clutch of M-numbers might suggest, opportunities to be slightly out of position and in the wrong lane, or to exit at an unwanted junction, abound. On top of this, extensive road works have made signage temporarily redundant, which means the important sign you're looking for is now positioned at around car bonnet height and easy to miss.
Still mindful of this following a successful meeting at a handsome-looking hotel, I sought to retrace my steps and head west, whereupon I was confronted by a barrage of temporary yellow road signs guiding me north towards the M61 and deepest Lancashire.
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As I joined hundreds of other drivers and headed towards Preston, there was nowhere to turn around. Eventually, I had no option but to come off the
READ: Is it really possible to retire at the age of 40?motorway and, yes, consult my road atlas. Within a few minutes I happened upon a new trading estate in Bolton. Which is where I first spotted it. Actually, you couldn't miss it: an enormous warehouse where more than 1,200 people work around the clock, ensuring the goods we've ordered online, in this case from Amazon, are delivered to our doors. Amazon now has 15 of these gigantic fulfilment centres across the UK (employing 24,000 people), but as our penchant for online shopping shows no sign of abating, plenty of other high street and online retailers have similarly huge facilities next to the nation's motorway network.From an investment perspective, owning a slice of a warehouse the size of three football pitches can be rewarded with solid, longer-term dividends. Not surprisingly, retailers of every hue scramble to occupy the best-located warehouses. Once a warehouse lease has been signed, retailers usually invest heavily in them, installing automated goods-handling equipment and the latest logistics technology. This up-front capital investment means tenants tend to prefer longer-term leases (25-year terms are not unusual) as they have an opportunity to see a return on their investment. For the property owners, signing long-term agreements with retailers of the calibre of Amazon, Marks & Spencer or Sainsbury adds considerable value to their asset. If the rate at which the construction of well-situated warehouses appears to have increased over the past six years, causing lengthy delays for motorway traffic, that's because it has. The most important effect of a 2012 legislative change was to encourage real estate investment trusts (REITs) to invest heavily in different areas of UK property, primarily warehouses and student property. Since then, the construction of both typesREAD: Will you be helping to swell Amazon's profits on Black Friday? has increased markedly. While the student property market appears (to this observer) to be dangerously over-supplied, retailers continue to compete for flexible warehouse accommodation.
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REITs can be an attractive investment for those seeking income from their portfolio. Essentially, they're companies devoted to property investment and, as many are traded on the stock market, retail investors can effectively become shareholders in a variety of property investments.
In exchange for operating within comparatively tight parameters and to encourage investment in alternative areas of UK property, REITs do not pay corporation or capital gains tax. In return, they must distribute 90% of their rental income to investors.
REITs that own these gigantic warehouses currently find themselves in a decent position. Not only does demand exceed supply for prime units, rental income appears visible over the longer-term.
Watching dozens of trucks moving in and out of Bolton's Amazon warehouse ensured my diversion around Lancashire was not a waste of time. Instead, it reminded me how solid a REIT investment can be: a tad boring, perhaps, but having a cornerstone of boring, income-yielding investments usually provides a solid foundation for any portfolio.
The week in numbers
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Peter Sharkey read economics at the University of Bristol. He worked as an accountant on three continents and has been a company director and investor for more than 30 years, building and selling three different companies.